By just about every metric, 2018 measured up to be a remarkable year for Greater Cleveland’s economy. New jobs, commercial and residential real estate sales and construction, growing workforce and, potentially, a growing population again.
In the weeks since the start of the new year, published data has evinced the turnaround of region’s economy. But each report has done so in isolation to the other. No published report has put all of 2018’s economic achievements in one place, until this one. So feel free to share it with others — especially family, friends and associates out of town. We can all play our roles to help keep the engine humming.
First, let’s consider jobs. Greater Cleveland has been slowly and steadily adding them every year since the Great Recession of 2009-10. In 2018, however, the region broke out of its almost boring growth pattern and leaped forward with a surge of employment growth that nearly doubled the national average. Cleveland was ranked among the 15 fastest-growing metro areas in terms of year-over-year job growth.
|Job growth has lifted almost every economic sector in Greater
Cleveland’s economy in 2018 (CLICK IMAGE TO ENLARGE).
That surge has been broad-based, affecting eight of 10 employment sectors tracked by the Bureau of Labor Statistics. The only two not seeing healthy job growth in Greater Cleveland are information services and “other” — the latter being stagnant. Information services are the region’s smallest employer — one-third smaller than “other.”
Education and health services are the region’s largest employer, and are at their highest employment levels in the metro area’s history. Next largest, in order, are trade/transportation/utilities, professional/business services, government, manufacturing, leisure/hospitality, financial activities and mining/construction.
It should be noted that Greater Cleveland’s employment and labor force have increased by 13,000 people compared to 2017 and sustained that rate throughout 2018 despite normal seasonal fluctuations (NOTE: winter is invariably a seasonal low for employment/work force with summer being the peak). In most metro areas, their populations are typically twice that of the labor force. That probably means that Greater Cleveland’s population increased by nearly 30,000 in 2018.
Second, let’s look at Greater Cleveland’s real estate market. Media reports about its growing real estate activity have been divided among commercial and residential. But they’re both mostly positive. On the commercial side, the office and industrial markets experienced rising inventories, rising rents and rising occupancy rates. The fact that all three are rising simultaneously is pretty remarkable.
|Four million square feet of new residential space is being added to EuclidAvenue in downtown Cleveland, but less than 1/4th of that is from new construction. Most of it is being developed in old buildings that no longer meet commercial needs (KJP).|
“While the region has been derided for years for lacking real commercial property growth, with new development amounting to just shifting deck chairs on a ship, that was certainly not the case last year,” wrote Stan Bullard of Crain’s Cleveland Business on Jan. 13.
Nearly 400,000 square feet of office space was added in Greater Cleveland in 2018 yet office occupancy increased more than a full percentage point to 84.2 percent. At the same time, more than 2 million square feet of industrial space was under construction or delivered to the market in 2018. That includes two Amazon fulfillment centers — an 888,000-square-foot facility in North Randall and a 650,000-square-foot facility in Euclid. Many more industrial developments are coming.
On the housing side, home and condo sales volume in Northeast Ohio dipped below prior-year levels on an annual basis according to new data. Meanwhile, the average single-family home sale price climbed 5 percent to $169,361 in the region, while the number of days a property was on the market continued its decline, now down 9 percent to 77 days, as reported by Crain’s Bullard. The data suggests that Greater Cleveland-Akron’s housing inventory is too small, prices are too low and population is increasing.
Cuyahoga County has pivoted its housing program from its emphasis on demolishing vacant homes to rebuilding them and constructing new housing. The reason for the shift is that there is a lack of affordable, quality housing in the region. There are reports of double-digit increases in homelessness in Greater Cleveland, including among the working poor.
Third, this good news is catching the attention of out-of-state investors, as I wrote in November. But don’t merely take my word for it. Ingo Winzer, president of Local Market Monitor, a firm that forecasts home prices, rents and investment risks in markets nationwide, wrote on Jan. 7 in Forbes Magazine that Greater Cleveland is one of the best markets for real estate investment in 2019.
|Greater Cleveland ranks 5th on Local Market Monitor’s 2019 Best Bets list for real estate investors. But for bargain hunters, it’s clearly #1 in the USA (Forbes).|
With Greater Cleveland having some of the lowest real estate prices among the nation’s major metro areas, some people may wonder why the region would be attractive to investors. Note that there often are two types of real estate investors — those who like to ride the coattails of an already hot market (risking getting caught in a bursting bubble which seems to be happening in coastal markets as well Chicago and Denver). And there are those who seek tomorrow’s growth markets and invest in them early on. The latter, of course, carries its own risks but the cost to enter a market like Greater Cleveland is less. So if the growth doesn’t pan out, the investor loses less money.
That’s why Greater Cleveland ranked fifth in Local Market Monitor’s 2019 forecast. And for bargain-hunting real estate investors, it was the best metro area market in the USA. Greater Cleveland made the list because its job market is doing well.
“Jobs grew at or above the national rate of 1.5 percent in the past year. In places like Cleveland (who would have thought?), Silver Spring and Fort Lauderdale, the rate of growth is even a good deal higher than just six months ago,” Winzer wrote.
“I’d have no trouble investing in any of these markets (although I’m not an investor), but overlooked spots like Cleveland, Philadelphia and Kansas City appeal to me the most because you’re more likely to find properties in very attractive locations, which in the end is what counts for a successful investment,” he concluded.
|Housing construction and renovations continue to be brisk in some parts of Greater Cleveland. More real estate in the region, especially on the East Side, needs to be developed to create opportunities for upward economic mobility (KJP).|
Reducing the risk for investors are public-sector incentives, including Cuyahoga County’s housing program mentioned above. Another is the new Opportunity Zone program. O-Zones, as they are called, include troubled Cleveland neighborhoods as well as hot ones like downtown, University Circle, Little Italy, Ohio City, Tremont and Midtown.
Gus Frangos, president of the Cuyahoga Land Bank, said he is very excited for the opportunities offered by O-Zones, which reduce or eliminate tax burdens for real estate investors. He said this week that there has been a lot of interest in large properties in the land bank, particularly large apartment buildings and old industrial properties. Before the Opportunity Zone program, there was zero interest.
Suddenly, dozens if not hundreds of Cuyahoga Land Bank properties that have been languishing since 2010 for purchase at near-giveaway prices are now in the process of being transferred to new owners and investors. This offers a real opportunity for Greater Cleveland to address its dismal record of offering upward economic mobility to people in parts of the metro area that are experiencing hyperpoverty, namely the East Side of Cleveland and the city of East Cleveland.
It’s great news that 2018 was a year in which Greater Cleveland turned an economic corner. The question is, can its economy continue to move forward and sustain its momentum?