City Profile: Charleston
Stephen Porter, Principal of Real Estate at Kiddar Capital, looks at promising markets across the United States.
Historic and beautiful, Charleston is also a leading real estate market in the Southeast. Its economy is strong and diversified; its job growth in 2016 was more than twice the national average; its industrial market is expanding; and a substantial tech scene has taken hold in “Silicon Harbor.” The city also receives more than 4 million tourists every year, and was named voted the top U.S. travel destination for five years in a row by Condé Nast.
Kiddar Capital invests in real estate in promising markets all across the United States. These markets exhibit certain, quantifiable characteristics — many of which are evident in Charleston, South Carolina.
Here’s why we’re interested in Charleston.
The trend towards denser living has greatly affected Charleston, and the big residential focus is in multifamily. Employment is steadily rising, and an “influx of new industry and service-providers” — including Boeing, Volvo, and Mercedes — is contributing to an apartment construction “boom” (The Post and Courier). High home prices due to the national housing supply shortage (and Charleston’s sharp socioeconomic divide) also mean that renting is often more feasible, and often the only option.
As a result, the multifamily residential market in Charleston is thriving. Rents are high, and vacancies are low — especially on the packed downtown Peninsula, where rents have risen by 30% over the past five years. A lack of space on the Peninsula has skyrocketed downtown prices and shifted a great deal of development out to the suburbs — a trend we will see continued throughout almost every sector of Charleston real estate. Continued and rapid population growth mean that there is a high demand for new residential product, especially multifamily, in and around the city.
Stable job growth, commitments by international companies, and a population of 22,000+ students within 1.5 miles of downtown mean that Charleston’s retail is thriving. Tourist spending by Charleston’s 4 million annual visitors averages $205 per person per day, but the city’s diverse and growing economy isn’t just dependent on visitors.
As in residential, space on the downtown Peninsula is in high demand. Rents along the main King Street are setting record highs, with spaces mostly occupied by high-profile and brand-name stores mainly catering to tourists. Submarkets like Daniel Island, Summerville, West Ashley, and Mount Pleasant are experiencing retail growth as local retailers look to more affordable locations. The market is predicted to continue to grow and require more development in coming years (CBRE).
Charleston’s office scene has high rates and low vacancy — especially in downtown, where rates can be 40% higher than the submarkets. The extreme crowding on the Peninsula may make it difficult for investors to generate returns, but prospects in the submarkets are promising (CBRE).
Technology is one of the fastest-growing office sectors in Charleston, earning the city the nickname “Silicon Harbor.” Rapidly growing tech companies in the city include BoomTown, BiblioLabs, Blue Acorn, Ceterus, Good Done Great and PhishLabs (Colliers).
Charleston has always been a popular destination city, and was voted the top U.S. travel destination for five years in a row by Condé Nast. The city receives over 4 million visitors every year — 4.8 million, by some estimates. The Charleston International Airport served a record 3.7 million passengers in 2016, a number which could to rise to 4 million in 2017.
There are over 40 hotels in the pipeline, mainly in Charleston/West Ashley (but outside of the overcrowded Historic District). While supply is currently limited, the new construction is expected to restore market balance.
Major resorts near Charleston include the Kiawah Island Golf Resort, The Sanctuary at Kiawah, Wild Dunes Resort, Seabrook Island, and The Beach Club at Charleston Harbor Resort and Marina. The Kiwawah Island resorts and the Intercontinental Hotels Group are the two largest hospitality employers in the city.
Charleston’s industrial market has two distinct advantages: labor and transportation. The Port of Charleston is “one of the fastest growing ports in the US,” and the city’s industrial market slashed vacancies in half (from 8.5% to 4.2%) from the beginning of 2016. Major industries include aerospace, advanced security, biomedical, wind energy and, more recently, automotive manufacturing. The city’s biggest industrial employers include Boeing, Robert Bosch, SAIC, and Nucor Steel.
Volvo is building a $500 million car plant in Berkeley County, and Mercedes-Benz Vans is constructing one of similar size in North Charleston. The facilities are the first new vehicle plants announced in the U.S. since 2009.
“Charleston is a boomtown,” says Kiddar’s founder & CEO Todd Hitt. While the oversaturated downtown Charleston market might only offer limited returns, the expansion of virtually every sector into the city’s submarkets creates room to move and invest.
Multifamily residential and retail are thriving, supported by a strong and diverse economy with 4.9% unemployment, 3.5% job growth, and strong industrial, tech, and hospitality sectors. Charleston’s industrial market cut vacancies in half from the beginning of 2016, and major car manufacturers Volvo and Mercedes are moving in. The city’s tech scene is one of the most rapidly growing on the East Coast, and office rents are the second-highest in the Southeast. The city also welcomes more than 4 million visitors every year, who spend $205 for every day they’re in town.
Charleston’s vibrant economy supports an incredible real estate market, and expansions to both the Port of Charleston and the Panama Canal will only increase Charleston’s attraction in the coming years.