This is the second of a two-part series examining the downtown housing boom.
In the first installment, a WCPO analysis found that taxpayers are covering at least 41 percent of the current downtown apartment boom. Read the full report here.
CINCINNATI - Developers building in downtown Cincinnati are banking on the adage: If we build it, they will come.
But not everyone is so sure there is a long-term market for thousands of new apartment units in and around Cincinnati's urban core.
Developers are working to add 1,174 apartment units to the roughly 2,500 already operating in Central Business District. Another 400 units are under development in Over-the-Rhine, Pendleton and Newport.
Beyond that, more than 2,800 new rental units are in the development pipeline region-wide.
That’s roughly three times the normal construction volume for multi-family housing in the Tri-State.
“The downtown market is very strong and I believe it will be even stronger once these new units are delivered,” said David Lockard, senior vice president in charge of the Multi-Housing Group at CBRE Capital Markets. “At some point, it will slow, but I don’t think that will be for some time. The urban core is not only in Cincinnati but a lot of other markets are in demand. It’s a desirable place to live.”
Lockard’s most recent research on the downtown rental market shows a 97.7 percent occupancy rate in August. Many buildings have waiting lists. Downtown’s average effective rent rates of $1.35 per square foot are among the highest in the region.
The Banks riverfront development project stoked the current wave of downtown’s building boom when it quickly leased the 300-unit Current@The Banks building at rents of $1.80 per square foot.
So, even though developers are planning to increase the number of available units downtown by 50 percent, Lockard is convinced they will be “readily and rapidly absorbed.”
Not everyone is so sure.
“There is probably more product downtown on the books … than there is demand,” said Gregg Fusaro, regional partner at Capital One Investment Group Inc. Fusaro’s company built two luxury housing products on the Newport riverfront: SouthShore condominiums and Vue180, a 93-unit apartment building.
“What generally happens in every real estate cycle is you go from a period where there’s no new construction to a situation where everybody goes out and decides to build,” Fusaro said. “We will build past what the market demand is. That’s my guess.”
That would lead to higher vacancy rates and lower rents, ultimately putting some projects under financial stress. But Fusaro thinks the market is strong enough - and city subsidies high enough - to sustain projects through its inevitable down cycles.
"When the market tightens up the guy that didn’t get the subsidy is going to have a harder time," he said.
Location analytics firm ESRI published population projections in July that suggests developers are over-reaching with new units in or near downtown. ESRI predicts a net gain of just 203 new residents in the 45202 zip code, which includes downtown, much of Over-the-Rhine and Mt Adams.
ESRI projections by census tract are in the map below. You can click on each census tract to view the projected population growth by 2018. Clicking on the dots displays current or planned developments in and around downtown Cincinnati.
ESRI demographer Lynn Wombold said the projections are based on past growth rates. The zip code grew by 0.29 percentage points from 2010 to 2013, reaching 15,450 this year. ESRI assumes a growth rate of 0.26 percent for the next five years, bringing population to 15,653.
“Our data does not support another 1,200 units in ZIP Code 45202,” Wombold wrote in response to WCPO questions. “However, I do not know the condition of (vacant housing in the downtown area). Urban renewal means that they need a bigger view than just the demographics of the base population. If they are demolishing old, rundown units, they will be attracting movers from other areas in the city.”
Empty Nesters and Millennials May Fill Market
The prevailing view among downtown boosters is that long-term demographic trends will support the next wave of apartment projects.
The view goes something like this: A rising number of empty nesters and young professionals now see home ownership as a burden, not an opportunity for wealth building and stability.
“A lot of the millennials look at a house and say, ‘It’s a chain around my ankle that I can’t get out of.’ That’s a significant change that’s not going away,” said Fusaro. “You’ve got empty nesters that in a lot of cases have a second home somewhere else. They want to spend the time that they’re here in Cincinnati having fun.”
Those two demographic groups may represent as many as 1 million people in the Tri-State, a large potential pool of customers for downtown apartment developers, said Rick Kimbler, managing partner of Northpointe Group, which has produced dozens of apartment and condo units in Over-the-Rhine and downtown.
“I don’t think anybody doubts any more that there’s an unmet demand for urban core housing,” said Arn Bortz, principal at Towne Properties LLC, which owns and operates more than 200 units near Garfield Park and is trying to build an apartment high-rise above the downtown Macy’s store.
View the map to see where "Metro Renters," "Metropolitans," and the "Social Security Set" live in and around Cincinnati.