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Office and retail space struggle while apartment market forges ahead through COVID in Cleveland

Posted at 6:00 PM, Mar 10, 2021
and last updated 2021-03-10 19:39:40-05

Cleveland’s apartment rental market appears to be maintaining its relative strength a year after the COVID pandemic shut down much of the retail, office, and restaurant space around it, according to the Downtown Cleveland Alliance’s latest report.

Downtown workers like John Bloxson have noticed the difference between March 2020, when Ohio got its first COVID cases, and March 2021, when much of the state is weeks or months away from getting vaccinated.

Bloxson works downtown and has become used to largely empty sidewalks in the city.

“It’s actually shocking at times,” said Bloxson referring to the relatively empty sidewalks. “But it seems to be getting back to normal slowly but surely.”

Downtown Cleveland Alliance Executive Vice President Michael Deemer says the pandemic has cost downtown dearly in many ways.

Playhouse Square has been quiet for a full year. It will release more information in early April about when the stages will light up again.

“Downtowns thrive on people, we thrive on density and we’ve not had those things over the last year,” said Deemer.

Office Market

Thousands of downtown Cleveland office workers have been home for much of the last year, putting the office market in a tough spot.

Newmark is a commercial real estate company that tracks market conditions in downtown Cleveland. The big take away from its most recent report is that companies are realizing they have far too much space and are putting more and more of it up to be subleased.

Even as downtown companies require many workers to stay home, Coyne says office space isn't going away completely, but it will likely be used differently after the coronavirus.

“By the end of the fourth quarter, sublet vacancy nearly doubled from the onset of the pandemic in the second quarter to 306,155 square feet, which resulted in a 0.8% vacancy rate, the largest rate the Cleveland office market has seen since the first quarter of 2013,” the report states.

Newmark’s Terry Coyne says companies are thinking, “'If there’s any way to mitigate my rent, I’d love to mitigate it by renting it to someone else,'” right now. “The problem is everyone had the same idea at the same time.”

As a result, Coyne says the primary office market is taking a hit because subleased space is so much cheaper.

“The benefit to that is I think it’s going to make building owners in the primary lease market wake up and say we need to differentiate ourselves,” said Coyne. “We need to have buildings with amenities, we need to give you reasons to go to work otherwise you’re just Dilbert in your cube and you may as well just stay home.”

Downtown Cleveland
Downtown Cleveland on March 17, St. Patricks Day, shortly after Ohio's shutdown orders went into effect. What would normally be streets filled with people enjoying the holiday were completely empty.

“We typically have over 100,000 people working in Downtown every day,” said Deemer. “A lot of those people are working remotely right now.”

But Deemer is optimistic about the new office trends that will emerge after the pandemic is over, based on hesitancy to return to open-floor-plan designs and the need for more space. During the pandemic, DCA data shows 53 office tenants relocated or recommitted to downtown, leasing 740,000 square feet.

Renovated workspace inside Post Office Plaza gives Cleveland-area companies new options for downtown addresses.

“I think the need for less square footage with fewer workers in the office on any given day because of flexible policies is going to be offset by the need to spread those workers out a little more,” said Deemer.

That approach would lead to more offices with doors and more space in general, leading to fewer companies taking up more square footage.

Retail Space

“If you asked me what part of this building or any building in downtown is impacted themes by COVID, I’m going to tell you the retail markets,” said Alto Partners CEO Michael Sabracos.

Alto Partners is weeks away from finishing renovations on Euclid Grand, an $80 million project bringing 240 apartments and 20,000 square feet of retail space to Euclid Avenue. The project started in late 2018.

Almost all of Euclid Grand's sidewalk space is slated for retail as soon as tenants are ready.

“Pre-COVID, we were really marching toward a great retail environment in Downtown Cleveland and I was excited for it,” said Sabracos.

But he says the pandemic hurt the retail market and the riots on May 30 in Downtown Cleveland didn’t help. Geigers announced in February that it would not reopen its downtown location directly across the street from Euclid Grand after the pandemic and riots.

Vacant downtown CLE buildings will get new life
Gordon Geiger looks at the buildings that would become Euclid Grand in August of 2017 from inside Geiger's across the street.

Sabracos says those circumstances mean Alto Partners is getting creative with how its retail space is rented out, entertaining the idea for a revenue share agreement with a potential tenant instead of a traditional monthly lease with rent.

“We have to take the approach of ‘we’re going to work with you, let you get him here and make sales and start paying rent because we want you to succeed,” said Sabracos.

Sabracos' Alto Partners closed on the former John Hartness Brown buildings in the 1000 block of Euclid Avenue for $9.1 million, Cuyahoga County property records showed.

Sabracos says he would like to have a traditional retailer in at least part of his space along Euclid but he also expects to have service retail and a restaurant presence too.

That square footage is hitting the market soon after a significant list of downtown businesses have closed during the pandemic.

Restaurants that have closed downtown

Bar Louie
XO Prime Steaks
Cello's Grill
Ruth's Chris
Cowell & Hubbard

Restaurants that have closed near downtown

Ohio City Galley

But, Deemer points out at least 13 businesses have opened up during COVID.

27 Club Coffee
Beyond Juice and Eatery
Citizen Pie Roma Café x Six Shooter Coffee
Coco’s Paints
Fahey’s Bakehouse
Haymarket Pet Co
Little Black Dress
Poke 86
Sauce Boiling Seafood Express
Sixth City Sailor’s Club
Unruly Jamaican Cuisine

News 5 also spoke to Kyler Smith, who plans to open Filter around Memorial Day in the Perry Payne Building.

Apartment rental

The outlook is relatively brighter in Cleveland’s growing apartment market.

“What our data shows is that downtown living continues to be very, very attractive,” said Deemer.

An interior courtyard gives residents a place to do yoga and sit outside while inside Euclid Grand.

Despite the fact that more than 1,200 apartments became available to rent downtown in 2020, the occupancy rate stayed relatively high. It dropped from 90% at the end of 2019 to 84% by the end of 2020. Experts say that drop is because of the time it takes to rent up new apartment inventory.

Even with the new apartments, the price per square foot to rent downtown is essentially the same as it was before the pandemic. As a result, Euclid Grand and other downtown apartments tell News 5 they still aren’t offering discounts or deals they wouldn’t normally offer.

Dogparks like this one behind Euclid Grand are part of the battle new buildings wage to win over renters.

At the same time, Sabracos says leasing up Euclid Grand has gone well so far but it likely would have gone even faster if not for the pandemic. The new building is in what was known as the John Hartness Brown Complex, named for the man who owned much of the land in the early 1900s.

“There’s always demand,” said Sabracos. “I don’t know that in this market, there’s anything called ‘high demand.”

Some of Euclid Grand's apartments look over Euclid Avenue, across the street from Heinens.

He says Euclid Grand combines the historical character of projects like The May, which put roughly 300 apartments just feet away from Public Square, with the amenities offered in new construction projects like The Lumen and Beacon.

“Yeah we have a gym, but we also have hydromassage chairs in the gym,” said Sabracos. “You have to go to extra, and you get a free massage for 15 minutes a month and you can buy more if you want.”

A return to normal

Bloxson says before the pandemic, downtown was undoubtedly on the upswing.

“There was so much going on,” said Bloxson. “You had the Indians, the Cavs, the Browns are actually winning for the first time in a long time and now everything is shut down.

The view from Euclid Grand's rooftop deck.

But as more Ohioans get vaccinated, more office workers return to their desks, and more visitors come to downtown shops and restaurants, Bloxson is looking forward to the interactions that seemed so commonplace before.

“Maybe just stopping to grab a cup of coffee and saying hello to the person behind the counter,” said Bloxson. “Those are the important things."

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