Downtown Cincinnati Continues to See Annual Population, Tourism Gains

Backstage Entertainment DistrictCincinnati’s center city continued to experience gains in residents, employees, visitors, and safety in 2012, according to a new report released by Downtown Cincinnati Inc. (DCI).

The newly released report is the annual compilation of facts and figures covering the Central Business District, Over-the-Rhine and Pendleton neighborhoods, and utilizes information gathered from industry and trade reports.

While the overall message of the 2012 State of Downtown Report was positive, growth in residential units and number of people living in the area began to level-off following years of strong growth.

In 2012, the report shows that the three neighborhoods added only 146 residential units last year. More than $100 million in residential projects, however, are either under construction or in pre-development stages, and will add hundreds of additional housing units to the center city over the coming years.

Transportation was another key element of the newly released report. The number of available parking spaces increased in 2012, and the cost of parking downtown decreased. Meanwhile, Metro continued the modernization of its bus fleet, but the Cincinnati Streetcar has seen continued delays.

“Cincinnati has become more pedestrian and bicycle friendly, but we still have work to do,” David Ginsburg, President/CEO of DCI, told the audience at the International Downtown Association Midwest Urban District Forum in Evanston, IL on May 21.

Two areas where the three neighborhoods showed particular strength were retail and hospitality. The downtown area added 59 businesses in 2012, bringing the retail occupancy rate to 96.2%. According to CBRE, the downtown area now has approximately three million square feet of retail space, which averages $89.49 in sales per square-foot.

Continuing on successes in recent years, the hospitality industry continued to post gains on its already impressive standing compared to other regional and national markets. The Central Business District, Over-the-Rhine and Pendleton now have 2,969 hotel rooms with the addition of 152 at the 21c Museum Hotel which opened this past November.

Downtown Population Trends
CBD Crime Statistics
The number of residential units downtown continues to grow, but at a slower pace than usual [TOP]. At the same time, crime rates have continued on their decade-long downward trajectory [BOTTOM].

According to the Cincinnati USA Convention & Visitors Bureau, these rooms boast a revenue per available room (RevPAR) of $77.37 – notably higher than the $65.17 RevPAR nationally. Downtown’s hotel rooms also had a better occupancy rate than anywhere else in the Cincinnati region, and matched the national average at just over 61%.

As a result of this hotel success, there are a handful of hotels either under construction or in the pre-development phases for this part of town, which would add hundreds of additional rooms. The realization of all of these plans may, however, put some existing hotels, like the aging 872-room Millennium Hotel, at risk due to the extra competition.

The 2012 State of Downtown report also noted a continued drop in all crime, with a 10% drop in violent crimes (Part 1) and a more than 8% drop in Part 2 crimes.

Ginsburg believes that the safety improvements come, in part, due to more activity taking place, and says that DCI stakeholders are working to continue those efforts.

“We’re turning pretty much everything downtown into a piece of art, and it’s putting feet on the streets.”

  • Zachary Schunn

    “[G]rowth in residential units and number of people living in the area began to level-off following years of strong growth.”

    Clearly a result of limited supply. I’m still hearing about 6-12 month waiting lists for apartments downtown.

    • I honestly have no clue what is taking the Cincinnati development community so long to move on new residential projects. There are tons of projects that have been in the hopper for some time…and the only people who seem to be making any progress are out-of-town investors/developers (Uptown notwithstanding).

    • Zachary Schunn

      1) ROI, 2) the shear legal/logistical complexity in planning a development project and getting it approved

      If new construction costs $180/sf (including land/building acquisition), apts. are grossing $1.25/month, and 90% is rentable, the gross return is 7.5%. Subtract 3%/yr. for real estate taxes, 0.5% for mgmt., and 1% for repairs and other overhead, and your return is suddenly at a measly 3%.

      Tax incentives, lower construction/acquisition costs, and other cost efficiencies can bring this return up, but trying to get it to a required yield around 7-8% can be tough.

      Between the high availability of rehabs in downtown/OTR, increased tax incentives, and easing in the credit markets, we have just reached the fundamentals for new development in the last 2 years.

      But once you get that developer interested, identifying the right opportunity, securing the property, obtaining public and private financing, and overcoming all legal hurdles, you’re still looking at 3-5 years on most major developments. Sometimes longer if politicians are involved (how long did the Banks take?).

      As for out-of-towners versus Cincinnati developers… well, you do see some Cincinnati developers active (Model Group, Uptown, The Edge, etc.), but Cincinnati’s developers are mostly local guys with limited urban development experience. That’s why the interest is coming from Indy, Chicago, Pittsburgh, and NY.

      That, and developers in these other cities are used to, and willing to accept, lower ROI.

    • Right…I hear what you’re saying, but I’ve been hearing local developers make these comments for many years. In my opinion it’s an excuse.

      We have condos and apartments (96% occupancy) that are both in high demand and at high values. We also have a retail sector that is over 90% occupancy in Downtown/OTR/Pendleton.

      This is a sign of free market failure. If you can’t get a project to make financial sense in these market conditions, then it just seems like you just don’t really want to invest in an actual development.

    • Zachary Schunn

      “[I]t just seems like you just don’t really want to invest in an actual development.”

      Some developers are in the industry for social equity reasons. But most are investors. An investor’s goal is to make the most money possible for the lowest risk.

      I love to see new development just as much as you do, but if there are higher return investment vehicles, with similar or lower risk, they’re going to pursue them.

      That said, I think the fundamentals that weren’t there 5 years ago are there now. But, I think what we’re seeing is how incredibly long it takes to get things moving once you’ve reached the fundamentals (96% occupancy, high rents)… especially in the worst credit market in 80 years.

    • Zachary Schunn

      To give a comparison:

      Suburban development didn’t really take off until after WWII… 15 years after the 1929 financial crash.

      The fact that we’re seeing any amount of progress just 5 years after the last crash is pretty impressive to me.

    • This is a false comparison. Suburban development didn’t take off until it did because that’s when the personal automobile became widely affordable, and was accommodated by the massive expansion of roads and highways.

      Center cities already accommodate for housing. There’s nothing that people need to wait on technology-wise. It’s just a matter of whether the private development industry decides to accept that there is a market out there for urban housing. In most markets this has been accepted, but not yet Cincinnati where most new urban infill projects are of suburban design nature, and truly urban infill rare and takes forever to materialize.

    • Zachary Schunn

      The data I’ve seen don’t demonstrate a spike in auto sales after WWII that would correlate with suburban growth. Besides, the Model T debuted in 1908… it wasn’t the auto that caused suburban growth in my opinion, but a culture change that the auto helped create. That culture change occurred over a 40-50 year period before suburbanization really boomed.

      What you’re describing as a free market “failure” I believe is more a delayed reaction, and one that is historically typical.

      Why, then, is Cincinnati behind NY, Austin, San Fran, Seattle, Pittsburgh, Chicago, etc., etc.? Same reasons we are ahead of cities like Cleveland, Toledo, and Detroit. Culture, politics, weather, money, jobs, transportation, crime or the perception of crime, etc.

      A 96% occupancy rate downtown is amazing, but it’s not abnormal. The national average according to REIS is 95.7%. Pittsburgh is around 99%.

      I’m not saying these things to discount Cincinnati compared to other cities. I’m simply saying it doesn’t make sense to blame developers for a market issue.

      As I said, though, I do think the market is here. Now it’s just a matter of the hurdles (zoning, politics, financing, etc.) developers need to get over before the development can happen.

    • There was a massive spike in car ownership rates, and vehicle miles traveled, in the United States between the mid-1940s and the late 1980s:

    • Zachary Schunn

      “The data I’ve seen don’t demonstrate a spike in auto sales after WWII that would correlate with suburban growth.” –myself

      Well, that was clearly a dumb thing to say. Thanks for the chart, Randy.

      What I MEANT to say was I don’t see the data to suggest vehicle ownership CAUSED suburban growth. It may have been a facilitator, but I would argue the cultural shift to allow it came first. That would be like arguing a decline in auto ownership has caused downtown re-population. Both are the result of cultural shifts.

      My larger point was relative to how far we’ve come just 5 yrs. removed from the financial crisis, in comparison to the 1929 crash. The fact that an interior, mid-sized city like Cincinnati is seeing ANY new development is amazing to me. (Glass half-full, if you will.)

    • Matt Jacob

      Existing developers in our city aren’t accustomed to urban redevelopment (outside of 3CDC) it’s not their bread and butter if you will. The Towne Properties of the world mostly build new; I mean they needed to take down buildings in Corryville before they could provide new residential stock in that urban area. In OTR they aren’t allowed to bring down buildings which prevents their past development strategies from thriving there. It’s taking new developers time to make it through the learning curve and figure out the hurdles and make these type of projects work, but they’ll get there it just takes time. That learning curve is there for outside developers too because every city is different. Financing is really difficult right now for most that are trying something new like this, and it’ll take a few projects to prove they are capable. Things like this take time. Zach’s right that the market is there staring us in the face and the fact that we’ve moved this far towards it already makes me exited for the future when things really start clicking.

      PS comparisons to the Great Depression are moot. There are way too many dynamics that have changed in the last 80ish years to even jokingly compare the two. Even comparing the current real estate industry to the pre-1986 RE industry are convoluted at best. Get real.

    • Neil Clingerman

      I’m also curious as to when the ROI will make sense given the huge spike in demand? Even though financing this might be an issue, would it make sense to go larger scale to increase returns in by these developer standards?

      I wonder if there is a lot of discussion in Cincinnati’s real estate community about the recent interest from out of town money as well? Also, why are hotels being proposed like hotcakes and not residential when both clearly have high demand?

      There’s a lot of odd things happening here.

    • Zachary Schunn

      I think the ROI is there in many locations downtown, mainly thanks to the success (and high rents) of the Banks. Which is why there’s been such a spike in newly announced development. But in most areas of the city real estate prices (rent and buy) are still very, very low compared to other cities. It’s going to take higher rents to see more investment (both more development and higher quality development). I also think as housing comes back condos are going to see more success downtown. But location is very critical.

      Out-of-town interest is not surprising. In development, as mentioned a lot of out-of-towners just have more experience with urban (re)development, and have more capital and appetite for risk. In pure investment real estate, Cincinnati is really being infiltrated by east and west coast investors. Yields are 2-3% higher in most assets classes here than they are in the “A class” cities.

      Hotels? You got me. Yes, the economy is improving and tourism is up, but occupancy is only average downtown. The hotel development seems mostly speculative to me. I really hope the demand is there to support all the new supply.

    • The rise of cars may have happened earlier, but it was freeways that really caused movement to the suburbs, as they allowed movement into and out of the city with ease, basically allowing for wholescale divestment in cities. In large part, this happened as a result of the Federal Aid Highway Act of 1956.

    • It’s funny that this only seems to be a problem in Cincinnati. Other comparable markets have seen, and are continuing to see, investment with these kinds of favorable market conditions.

      I’m not suggesting the development community needs to pursue “social equity.” What I am saying is that there is a market out there that many developers elsewhere around the country have figured out how to work in and be profitable. Why is the Cincinnati market so different?

    • Jay

      Randy, where does your figure of 90% occupancy of retail for downtown/OTR come from? That seems high.

    • There is approximately 3 million square feet of retail space downtown and it is 96.2% occupied. This was part of the State of Downtown report, with the data coming from CBRE.

    • Jay

      I assumed that the figure was based upon square footage. I think that doing so misrepresents the view from street level. Now that Macy’s is the only large retail footprint in downtown, this figure should be accompanied by a percentage of available vs. filled storefronts and dedicated retail spaces; otherwise, it’s pretty useless. I understand the perspective that wants to view things in terms of sq. ft., but in this instance I think it skews reality terribly. I’ll bet you a double dip Graeter’s ice cream cone on the square that I can count sixty empty retail spaces within the downtown core bounded by Third street, Central Ave, Central Parkway, and Broadway. There may well be one hundred. People so often heap praise upon small retail jobs and entrepreneurship, yet fail to provide a perspective for it.

      And, I would also guess that since Tower Tower Place Mall is about 70,000 square feet (and 3.8% of 3 million is 114,000), that it isn’t included in that percentage. And what of the old Closson’s space?

    • Someone could make the case that 100% of the usable space downtown is used. Many or the empty store fronts I see such as those on 3rd and 3rd &

      Main are no where usable for any kind of modern business.

    • Jay

      That’s like saying that 100% of employable people are employed.

      If we defined usable as ready for immediate use or requiring minimal renovation, that would certainly change the POV on OTR (and do it a disservice). Allowances for buildout are always part of a lease negotiation and renovation is part of what it takes to attract lessors. The downtown core has shed a number of small shops & service businesses since the exodus of the two card shops –the Hallmark on 6th and M. Hopple in the Westin. We need to fill (refill) small business spaces in the core.

    • Matt Jacob

      would you also count the Barlett building’s spaces even though the building’s mechanical systems aren’t functioning? sure they could pay TI to rebuild-out the space but where is the line when you’re essentially rebuilding the building to fill the space? Many buildings such as those on 3rd & Main and many others in upper downtown fall into this grey area as legacy spaces from a past era of retail downtown.

      Tower Place technically should be partially off the retail list now that it’s redevelopment plans have been announced; except for the few street level retail spaces that are part of the plan.

      I do agree that the core needs stronger basic amenities such as businesses that last longer than the 5 day office work week and workday hours. Residents are a part of the answer but when will the perception that you can do viable business after office hours reach the tipping point?

    • I’m thinking about things like updated wiring and data networks. Is someone willing to run exposed conduit around to achieve that? Cosmetic concerns are real, I run into this all the time. The cost of entry to update some of these places is a real barrier. Who wants to sink half a million in a building to stabilize it before they can even begin the rehab?

    • Jay

      The kinds of retail spaces downtown needs to fill are in the 500 – 3000 square foot range. Towne just leased to a new dry cleaner on 7th between Elm & Race. A couple more storefronts there remain empty. The 580 Building has several retail spaces available on the second floor arcade, but that’s a case of the severe drop in tenants affecting things to the point that lessor’s had outs if they wanted them. The possibility of a change in the tenant mix of that building to include residential is likely putting those spaces in limbo. Walk around the block next to yours, 5chw4r7z and you find several available retail spaces. Again –more positive news– 4th between Plum and Central is better filled with retail than in the last several years. Schuster still needs to find someone to take that storefront space with the oddly ramped floor. There’s a nice modern storefront in the URS Building (36 E 7) that’s been available forever. The old Walnut Street Grill space seems to be just plain jinxed by the terrible layout of the space over the two floors. Restaurant Row is doing nicely (on the north side of the street, mostly), but the corner anchor Oceanaire/Bartini space needs to be cut up into smaller less widely footprints. 617 Vine; more limbo? Not sure what’s available in the Mercantile arcade right now. Southeast corner of 4th & Race? Six years ago a 25 year old downtown business left for No. KY rather than deal with the difficulties of dealing with the city on renovating that building. It’s a chicken & egg thing with downtown office space occupancy rates. When those rise & show some staying power, there will be some small biz infill, but I still say there’s a LOT of small biz storefront space available in downtown and plenty of it is usable.

    • Oh brother, now that you bring up my end of 4th I have to wonder if property owners are half the problem, Middle Earth controls the empty store fronts on the South side of 4th. Those guys can’t find their ass with either hand.

    • Jay, you have a point regarding the vacancy rate. Typically only space available for lease is included in the rate. Meaning if there is space in need of renovation (or even undergoing renovation), it’s not included. This is for the reason 5chw4r7z alluded to… the vacancy rate is meant to show the strength (or lack of strength) of the leasing market, not the competency of building owners.

    • Tower Place Mall is not counted, and wouldn’t make sense to include since it has been shut down as it is prepped to be redeveloped into a parking garage with street-level retail. Once that, I believe 20,000sf, retail space comes online then it will be put back into the equation.