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Hotel Market Insight: Cleveland

Hotel Market Insight: Cleveland

Cleveland’s population has suffered declines over the past decade, but industry abounds along the city’s Waterfront district and technology corridors. Leisure attractions that opened in 2012, including Ohio’s first casino and the Greater Cleveland Aquarium, are expected to draw hundreds of thousands of visitors. Cleveland’s healthcare and technology sectors also account for millions of dollars in economic impact and a sizable amount of the city’s hotel demand. The following article details major developments that are reshaping Cleveland’s lodging market and fulfilling the city’s motto of “Progress and Prosperity.”

Greater Cleveland’s revitalization over the past several years is most notable in its ascension as a global force in healthcare and technology. Recent developments include the following:

More than $1 billion in investment capital over the past ten years has spurred extraordinary growth in Cleveland’s Health‐Tech Corridor (HTC), which spans 1,600 acres in the area bookended by the Gateway District and University Circle. The concentration of the HTC’s more than 600 healthcare and biomedical technology companies and start‐ups allows for joint collaboration and innovation, which has helped drive the corridor’s rapid expansion; research initiatives in the HTC amount to more than $600 million each year.

Cleveland’s expanding healthcare sector both increased and satisfied the city’s need for a modern convention facility. The $465‐million Global Center for Health Innovation (formerly the Cleveland Medical Mart) in Downtown Cleveland showcases innovations in healthcare and biomedical technology and offers substantial meeting and exhibition space to host large‐scale conventions. The center opened in June of 2013; Positively Cleveland expects the facility to attract an additional 300,000 to 400,000 visitors annually.

New tourism and leisure projects are bringing new life to the hospitality industry, with nearly $12 billion in capital investments made in Greater Cleveland over the past three years.

Hotel Construction Update
Unemployment rates in Cuyahoga County have fallen considerably since 2010, mirroring state and national trends. Despite job losses in manufacturing, the region has realized significant growth in other economic sectors such as healthcare, technology, and tourism. This growth has been offset somewhat by declines in the government, hospitality, and business and professional services sectors over the past year, largely due to government sequestration; however, with continued expansion and capital investment in the healthcare, biomedical, and technology sectors, the overall employment outlook for Cleveland is optimistic.

Hotel occupancy levels in the Cleveland market have rebounded since the recession. Occupancy should continue to strengthen gradually, exceeding its pre‐recession peak in the next two years with the aid of demand generated by the city’s strong healthcare, biomedical, technology, and tourism industries. Average rate stumbled in 2009 and 2010, but bounced back in 2011; the push for higher average rates should bring stronger RevPAR growth over the next several years.

In step with the advance of new and expanding demand generators, two major hotel projects have recently been completed in Cleveland, with several others in the pipeline.

Recent hotel transactions include:

  • The Flats East Bank project which features a new 150-room Aloft hotel which was completed in June of 2013.
  • Value Place LLC recently announced plans to seek land to develop six new Value Place hotels in the Greater Cleveland area over the next two years.
  • The former Crowne Plaza Cleveland Downtown is undergoing a $70‐million renovation and conversion to the Westin Cleveland Convention Center. The luxury hotel will feature LEED‐certified green construction across 484 rooms, including 40 suites. The hotel’s conversion is expected to be complete in April of 2014.
  • CRM Companies recently announced its resumption of work, in collaboration with Kimpton Hotels & Restaurants, on the historic Schofield Building. The renovations will turn the property into a 122‐room boutique hotel and 55 luxury residences. Construction is expected to be complete by late 2014.
  • Drury Hotels recently emerged as the winning bidder for the highly sought after Cleveland Board of Education building; the company is planning to redevelop the building into a 180‐room Drury Plaza hotel.
  • Cleveland’s apartment market reported a remarkable occupancy rate of over 96% as of year‐end 2012. The K&D Group, Inc. purchased the Embassy Suites Cleveland Downtown in late 2012 and has begun a $3‐million renovation to transform the hotel’s 252 suites into 232 apartments. The removal of the Embassy Suites’ inventory of hotel rooms should aid the absorption of new supply in the near term.

Conclusion
Transactions ranged from the $1 million limited‐service Motel 6 to the $36.5‐million sale of the full‐service, luxury Ritz‐Carlton Cleveland hotel. These sales represent hotels built between 1963 and 1999; hence, major renovations are expected to take place over the next several years to modernize many of the properties.

The success of Cleveland’s transition from an economy hinged on manufacturing to a diverse collective comprising medicine, biotech, and tourism is evidenced in new points of interest in the city such as the Horseshoe Cleveland, the Greater Cleveland Aquarium, and the Global Center for Health Innovation. These venues, along with established attractions like the Rock and Roll Hall of Fame, promote a positive outlook for the local lodging market, which is expected to realize continued growth in league with greater demand.

This report was compiled with data from HVS and contributed by Jai Patel & Stacey Nadolny, HVS Columbus.

Photo Credit: Cleveland Across the River via Bigstock

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