Condominiums have been good to Savannah. Even with a rising number of new multifamily units in the pipeline, this coastal community’s occupancy rate has jumped over the past year, rents have climbed, and the forecast is for higher rents yet in 2007.
Much of the credit for those changes goes to condos. While condominium conversions are slackening off in many parts of the country, this historic city, laid out in 1733 in a grid of houses centered around multiple public squares, seems to be just discovering a taste for them.
In 2006, about 1,500 apartments were converted to condos, according to Charles Dalton, president of Real Data, a Charlotte, N.C.-based real estate market research firm. “For a market of only 15,000 units, that’s a pretty good amount,” he said. “That’s helped the vacancy rate quite a bit.”
In fact, the vacancy rate has been sliced nearly in half over the course of about a year, from 9.2 percent in 2005 to 4.7 percent as of December, Real Data statistics show. The city’s brisk pace of job growth has also been a big contributor to the multifamily market’s health.
Savannah had the fastest job growth of any city in Georgia in 2006, according to Real Data, citing a report from Georgia State University. Employment grew 3.5 percent in the 12 months ending in October, according to the latest statistics from the U.S. Department of Labor, more than a percentage point faster than Atlanta and twice as fast as Athens, Ga.
What’s behind this favorable alignment of the stars for apartment owners? Lots of people want to move to Savannah.
Leisure and hospitality businesses represent the city’s largest industry. In 2004, 6.3 million tourists visited. Not only did they spend $1.7 billion that year, but many of those who have toured the gracious city popularized in John Berendt’s bestseller, Midnight in the Garden of Good and Evil, come back to Savannah later to work or retire.
“The coastal environment gives it a good influx of new folks who want to come for the quality of life,” said Tom Grimes, senior vice president and director of operations for Mid-America Communities, Inc., a real estate investment trust that owns two properties in the area. “Savannah’s going to pull people that Cleveland’s just not—the echo boomers coming out of school plus the baby boomers retiring.”
The pace of in-migration has accelerated in the last few years, and net in-migration now accounts for two-thirds of population growth, according to a report from the Department of Housing and Urban Development. That’s helped boost the population of the metropolitan area to more than 328,000, from about 258,000 in 1990.
Major employers are expanding and adding jobs. Jet aircraft manufacturer Gulfstream Aerospace Corp., said it plans to increase its workforce by 1,100 jobs, or nearly a quarter, over the next five years. Target Corp., IKEA, and the Port of Savannah are all expanding.
Average rents increased about 4 percent to $736 a month in the year ended July 2006, and are likely to rise further in 2007, even though vacancies may increase slightly, according to Real Data. Over that period, 312 units were completed; another 1,008 were under construction as of August, with another 969 proposed. Market research firm Axiometrics, Inc., puts rental growth even higher, at 9.8 percent in the third quarter of 2006 from a year earlier.
Permitting rose to 3,552 units in the 12 months ending in August, a 22 percent increase from the 2,923 permitted a year earlier, according to Axiometrics.
The downtown historic district, which already has some of Savannah’s highest rents, is heavily oriented toward apartments and has major growth potential for both new apartments and condo conversions, according to a report from the Savannah Development and Renewal Authority.
One big reason: The Savannah College of Art and Design, which has more than 7,000 students. About 70 percent live off-campus, and the university’s expansion boosts rental demand in the area by about 100 units a year. Median rents for two-bedroom units in the area were $1,200 as of October 2006, according to the report.
Most of Savannah’s apartment growth is happening in the western part of the county, where 732 units are under construction. The highest occupancy rate is in the Bluffton/Hilton Head Island area, which is just across the state border in South Carolina.
The highest monthly rents are in the submarket east of the city, according to Real Data. That’s where Mid-America recently completed the acquisition of The Oaks at Wilmington Island, a 306-unit Class A apartment complex on Wilmington Island.
Mid-America paid $29.3 million for the property, which includes a swimming pool, a business center, and a fitness facility, and plans to invest close to $1 million in upgrades the first year.
“This is a wonderful opportunity for us to reposition this property with some well-focused capital,” said Grimes. “The Savannah market has been one of our best coastal markets.”
Mid-America’s other property in the area is a 220-unit Class A apartment complex in the southern part of Savannah that the company acquired in 1998. Although small markets don’t offer the acquisition opportunities available in larger markets like Atlanta, “We like Savannah, and we’d be glad to grow our presence further,” said Grimes.