Located on the shores of Lake Erie, where the Cuyahoga River spills into the Great Lakes, Cleveland boasts favorable geographic features that served as an impetus for its incorporation and rapid economic growth at its inception. Major industries that support the local economy include the financial and advanced energy industries and the insurance, healthcare, life sciences, and technology sectors. The healthcare sector is a cornerstone for the market, including the presence of Cleveland Clinic and University Hospitals; this sector's influence was the driving factor in the development of the Convention Center and Global Center for Health Innovation (known as the Medical Mart), which is the only facility of its kind in the United States. The city is also home to two major universities, Cleveland State University and Case Western Reserve University. In 2016, Cleveland hosted the Republic National Convention. This event spurred a round of hotel development in the market, including four new hotels in Downtown and University Circle. The new supply resulted in a drop in RevPAR levels in 2017; however, the new supply was absorbed by the market in 2018, resulting in a RevPAR level similar to that of the 2016 peak.
Demand levels for the Cleveland market have increased year-over-year since 2010, reaching a historical high in 2018. Contributing factors to this trend include the lowest office vacancy level in more than 17 years, as well as the Convention Center attracting more and larger conferences with the addition of hotel rooms Downtown. Moreover, the Downtown Cleveland Alliance is focused on positioning the city for new office, retail, hotel, and entertainment developments, with over $6 billion in investments along Euclid Avenue alone since 2010. Two prominent developments include The Beacon, a 29-story luxury apartment building, and The Lumen, a 34-story apartment building (Cleveland's largest residential project Downtown in more than 40 years). These projects are expected to be completed by 2019 and 2020, respectively. Furthermore, city tax and other business incentives, coupled with easy access to major transportation portals by air, train, water, and road, enhance the area's appeal as a commercial and manufacturing center.
In 2016/17, over 2,000 hotel rooms were added to the Cleveland market, highlighted by the 600-room Hilton Cleveland, 189-room Drury Plaza Cleveland, and 122-room Kimpton Schofield. While the increase in room nights was substantial, the unaccommodated demand levels are very high, particularly midweek and on weekends. This supply was completely absorbed by the market in 2018, as made evident by the increasing occupancy levels. The new convention hotel allows Cleveland to compete for more events and will allow the Global Center for Health Innovation to achieve its full potential. In 2018, the convention center reportedly held events that accommodated 102,287 room nights, up from 93,460 in 2017. With limited new supply anticipated in the near term and expected demand growth, occupancy levels should continue to grow modestly in 2019.
Limited sales volume has occurred in Cleveland since January 2016. The Marriott Key Center was part of a portfolio transaction, and the Ritz-Carlton sold as part of the casino transaction. Additionally, the Residence Inn by Marriott Downtown sold in November 2017 as part of a four-hotel portfolio for a reported $43,000,000 ($245,714 per room). Cleveland has become a prime tourist destination in the Midwest and is beginning to capitalize on the completion of the convention center and new convention hotel. While overall growth slowed in 2016 and 2017 given the entrance of new supply, 2018 illustrated the strength of the market with rebounding occupancy levels and continued ADR growth. The outlook remains positive for Cleveland because of its growing economy and numerous developments underway.