The Cincinnati apartment rental market remains robust with a strong appetite for residential units in the urban core, and especially in the Cincinnati business district. This trend has continued for several years, with renovations and new units going online in the Over the Rhine district, as well as development at The Banks.
The art and other entertainment options nearby such as the Great American Ballpark, Paul Brown Stadium, the Aronoff Center for the Arts, JACK Cincinnati Casino, the revitalized Music Hall, and Washington Park are all pulling the living and working environment in downtown Cincinnati, with buildings that have been refurbished and converted into upscale modern living spaces.
Kroger invested in the downtown market last year by opening a grocery store in the business district in the third quarter of 2019. The western end of the city center is currently being revitalized with the construction of the new football stadium. There’s a strong appeal for investment capital from out of town investors at a price of just $ 30,000 per door versus the current average price for Class C units of currently $ 54,000 per door.
Rent growth and yields are above the national average. Rent increases averaged 5.3 percent in 2019 and are expected to increase 5.1 percent through the end of 2020, translating into an average effective rent of $ 1,030 per month. 800 new units were shipped last year in 2019 and 1,700 new units will go online this year, with development centered in central Cincinnati. The takeover of these units increases the market vacancy to 3.5 percent.
The convenience that draws renters to a particular downtown area is its location; Proximity to work; the bars, restaurants and cybercafes in the area; and outside of living spaces such as parks, cycling and hiking trails.
The amenities that draw people to a particular property include on-site fitness centers, heated rooftop pools and rooftops with gardens for grilling, and clubhouses in the community. Views are also a big draw. Developers have attracted tenants in the area with units that have open floor plans, built-in microwaves, and bar-style granite countertops. Loft units in older houses are also popular. The Cincinnati tram public transportation has also contributed to this migration, making downtown public transportation more convenient.
Cincinnati is growing. Nine Fortune 500 companies are based here. This year 10,000 new jobs are to be created.
There are currently no Class A properties on the subway or suburban market. The enormous inflow of capital that purchases Class C value-adding shares has been greatly reduced due to a lack of inventory. The current inventory of Class C and C + properties for sale is minimal and quite competitive with CAP rates, or yields, which were 8.5 to 9.5 percent two years ago and are now in desirable ranges at 6.75 up to 7.5 percent. This has driven acquisition demand in the city to neighborhoods like Northside and the east sides of Walnut Hills, Mount Lookout, Oakley and Hyde Park, which are generating returns of or near 7 percent.
As an apartment building broker, I have a lot of buyers, some of whom need a 1031 wallet but limited inventory. The properties that turn out to be a profitable investment sell quickly at increased prices to clients associated with this broker. These properties are garden style units with little to no amenities in suburban locations. The current market has few properties for sale in these less desirable areas with garden-style units at an average price of $ 40,658 per door.
Northern Kentucky is a sought-after market with few properties added or changed hands in the past two years. The areas along the riverbank and on the hills across the Ohio River have developed in recent years thanks in part to reflective views of downtown Cincinnati.
Several high dollar developments are emerging or currently under construction in the city’s metropolitan and suburban neighborhoods. In the coveted neighborhood of Oakley, a new development brings 372 Market Rate units in addition to the assisted living units. A $ 29 million project with 176 workers is under construction in Walnut Hills. The city approved a 15-year reinvestment area tax exemption agreement for 100 percent of the value of the improvements.
The new Artistry development is being built on the riverside for $ 77 million. It will have 344 units and a car park with 390 spaces. The property will also have 8,000 square feet of commercial space. Amenities include a rooftop pool and aqua lounge, two-story fitness center, yoga studio, pet spa, communal garden, secure bike storage, and indoor and outdoor communal spaces.
In the suburban area of Blue Ash, a major white-collar employment district, 290 units are currently under construction in the redevelopment of the former Blue Ash Airport, with asking rents of $ 1,941 per month. The average unit size is 1,089 square feet. The units will begin leasing in March 2020. The expected rental rates average $ 1.78 per square foot.
The remainder of 2020 will continue to provide opportunities for informed investors to watch the market and take advantage of the opportunities that arise. Opportunities for value creation will arise, but in low-income areas, making the investment a leap in confidence. Class C units will keep their current values, but rent increases will be modest as vacancy rates should return to 5 to 6 percent.
Suburban real estate is urgently sought after to avoid the Cincinnati Metropolitan Water & Sewer District’s expensive water and sewer services. In the entire metropolitan area of last year, rent increases began to affect the affordability of single-family homes. This year, however, the number of single-family homes has fallen sharply, which has increased prices. This has resulted in tenants staying in place and owners reluctant to sell.
Robert Merkt is a vice president in the Cincinnati office of Lee & Associates.