Editor’s Note: This article was originally published in Crain’s Cleveland Business.
By: Andrew Batson, Manager of Research & Analysis, JLL
The Republican National Convention is taking place in Cleveland this week, and regardless of one’s political affiliations, all can agree the event will be a boon for the Cleveland economy.
In the short term, the convention will provide an estimated $400 million injection into the regional economy, but landing the RNC represents a much larger opportunity for the city. For decades, Cleveland has tried to secure a national political convention, and while Cleveland has come close in prior cycles, it has been 80 years since the region last played host to such a large political event.
The Republican Party announced in July 2014 that it had selected Cleveland as the host city for the 2016 RNC over Denver, Kansas City and Dallas. That same week, LeBron James announced that he would return to the Cleveland Cavaliers with hopes of bringing a championship title to the city after a painful five-decade drought (a dream realized just weeks ago). July 2014 was an exciting time in Cleveland, and an important chapter in Cleveland’s all-American comeback story.
Ohio is nationally recognized as a critical swing state, and surely this played into the RNC decision. Another major driving force in the RNC’s decision was the construction of a brand new convention center complex, complete with 358,000 square feet of exhibit and meeting space, and an attached 600-room Hilton hotel.
The new Hilton convention center hotel is just one in a string of hotels to come online in Cleveland in recent years. Without this added capacity, Cleveland would have been unable to support a convention of this size. The current development cycle has produced the largest increase in hotel supply in the region’s history. According to STR, which tracks hotel development, the Cleveland market has added 15 hotels in the past two and a half years. These new hotels have increased supply by more than 13%, adding an extra 2,845 rooms to the region’s inventory.
The RNC promised to bring 50,000 visitors to the Cleveland region over a four-day period. The economic impact of the convention is estimated at $400 million, in line with the economic impact recorded at the 2012 RNC in Tampa, Fla. Aside from the short-term economic benefit, the RNC provides an opportunity for the region to make millions of unique impressions on those who tune in to watch the event from home. The viewership for the RNC is not just domestic, it’s global; and the value of this international marketing campaign is virtually priceless.
It’s also important to note that the RNC marks the beginning of a convention industry for Cleveland, aided by a brand new convention center complex and enough hotel rooms to service the largest of gatherings. Ideally, the RNC will not be a one-time event for the city, but the beginning of a full-scale convention industry in Cleveland. Although Cleveland will not likely grow its convention presence to the scale of Orlando or Las Vegas, the global convention business represents trillions of dollars annually, and Cleveland is now well positioned to carve out its fair share of the market.
From a real estate perspective, there are some clear winners related to the RNC and a growing convention business in the region. The hospitality, multi-family, and retail property sectors stand out as the overwhelming beneficiaries. Delegates need beds to sleep in, restaurants to eat in, and event spaces to socialize in. The impacts on the office sector will be much less pronounced. While there will be some increased level of office demand from organizers, consultants and others who need space to work from before and during the convention, those impacts are somewhat limited and short-term. The same can be said for the industrial property sector. There will be some increased demand for storage related to the convention, but this demand will be limited and transitory.
Several commercial real estate trends taking place in Cleveland played a role in attracting the attention and interest of the RNC Steering Committee. It is undeniable that downtown Cleveland is in the midst of a renaissance. Driven by demographic preferences – mainly millennial and baby boomer demand to live in the urban core full of cultural and entertainment amenities – downtown Cleveland has experienced a surge of development activity in recent years. This surge has added more than 3,000 new residential units, the expansion of the retail sector,increased office demand and a pronounced hotel boom.
These growth patterns are trending in harmony, and accelerating one another. The influx of downtown residents has had a significant impact on the office market. The downtown residential population has skyrocketed during the last 10 years from about 8,000 residents to more than 14,000. And while some of these residential units have been created via ground-up construction, many have been the product of office-to-residential conversions.
These office-to-residential conversions have led to a reduction in office supply and a consolidation of Cleveland’s corporate base into the remaining office inventory. Since 2010, 4.5 million square feet of underperforming office space has been removed from the market. And while conditions have tightened, the market still has room for corporate growth and continued economic development. That said, market conditions have improved enough to attract institutional real estate investors looking to invest millions of dollars. One such investor is the Hertz InvestmentGroup, which has placed a significant bet on Cleveland with the purchase of the Fifth Third Center and Skylight Office Tower.
The RNC will bring welcome short-term economic gains to the local economy. More importantly, the RNC is just one component of Cleveland’s current economic and social resurgence, and the city is now even better positioned for long-term growth.
About the Author
Andrew Batson is a Manager for Research & Analysis in the Great Lakes region of JLL. Andrew is responsible for building and continuing to elevate a best-in-class research program that differentiates JLL and drives a competitive advantage in the marketplace through market expertise, analysis and insight. View Andrew’s bio or connect with Andrew on LinkedIn.