I get an average of two calls a week from investors, sometimes from other countries, who are interested in plowing some of their cash into Savannah real estate. I invest most of my own money here. Why are so many people so bullish on this city? Where will Savannah real estate be in ten years? In this blog, I’ll try to answer some of those questions, but it boils down to one thing – growth.
Why do investors pay much higher earnings multiples to own tech stocks than they do, say, an automaker? Because of the expectation of a ton of future growth. You see a similar thing in hot real estate markets and desirable locations, as cap rates will typically be much lower in Manhattan than Des Moins, Iowa.
What I love about Savannah is it’s a growth market that most people haven’t caught on to, at least not yet. You can still get into plenty of cash-flowing properties here, and there is a lot of growth yet to come that should drive appreciation in excess of national trends.
DRIVERS OF GROWTH
Savannah has a great mix of industries ranging from logistics, manufacturing, healthcare, education, and of course, tourism. Let’s dive into some of these industries and discuss where they’ve been and where they’re going.
Tourism is the most obvious industry that folks tend to think about when they think of Savannah. Many investors get their first introduction to Savannah as tourists and subsequently decide to invest here.
As of 2019, Savannah attracted an estimated 14.8 million visitors, generating $3.1 billion in spending, which amounts to about 15% of Savannah’s total GDP. This is a stunning statistic when you consider that the current population is 398,000. That’s over 37 tourists to every resident.
A large part of what makes Savannah such a big tourist town is how easy it is to get here. Savannah currently has direct flights to 27 airports, including DC, Boston, Chicago, Cincinnati, Dallas, Denver, Detroit, Grand Rapids, Houston, Louisville, Miami, Minneapolis, New York, Philadelphia, and Pittsburgh. There are regular flights to major hubs like Atlanta and Charlotte, meaning most cities in the United States are only a one-stop flight away. The average non-stop ticket fare is $279.
2. Port of Savannah
Take a guess – where does the Port of Savannah rank against other container ports in the US? Maybe the 10th or 15th busiest? Try 3rd busiest. Only Long Beach and LA push through more Twenty-Foot Equivalent Units (TEUs, the unit of measure used for shipping containers). (https://gaports.com/wp-content/uploads/2021/10/Monthly-TEU-Throughput-September-2021.pdf?1637097075)
Let’s dive into some cool stats about the port!
- 4.6 million TEUs went through Savannah’s port in 2020, and as of September 2021 4.1 million TEUs have been through. This represents a 60% growth since 2010’s 2.8 million TEUs.
- In FY 2021, the port added an additional 210k TEUs of capacity.
- The US Army Corps of Engineers $2 billion harbor expansion will wrap up in December of 2021. This expansion will push the depth at high tide to 54 feet, which will allow vessels in the 16k TEU range to call on the port. This means that Savannah can accept the Neo-Panamax class of ships – any ship that can currently fit through the Panama Canal can call on the port of Savannah.
- A $220 million Mega Rail project is almost complete, which will increase rail lift capacity to 2 million TEUs per year.
- The port of Savannah handled 9.3% of US containerized imports and 10.5% of exports in FY 2020.
The best part? Plans are already in motion that will double the throughput of the port to 9 million TEUs by 2030.
3. Population Growth
According to the Us Census Bureau in 2020, the expected 10-year growth rate in the Savannah HMA is 14%, which is double the annual rate for the US. This means an addition of roughly 1,850 households annually. Much of this growth is expected along the main travel arteries – including Pooler and Richmond Hill – which makes sense, because these are the main areas with the most new construction activity. It is difficult to build new inventory in the city of Savannah itself because the city is bounded by the river on one side and salt marshes on other sides. There’s not much buildable land to build on.
4. Rental Trends
Savannah’s average monthly apartment rent is $985/mo, up from $725/mo in 2010 (Q3 2020, HUD), and the overall average rent is $1350/mo (Aug 2021, rentcafe). Rents remained steady during the 2008 GFC, though vacancy then did jump to 10% during 2009-2010.
Looking outside the official data, there have been a lot of luxury apartment buildings constructed since 2018. Properties like Park + Broad, Eastern Wharf, and The Mata Dora are offering upscale units with the best amenities, and their average one bedroom rent ranges from $1750/mo at Park+Broad to as high as $3,200/mo in the highest-end one-bedroom units at the Mata Dora. Two-bed units range from an average of $2,500/mo at Park+Broad to $2,900/mo at the Mata Dora. Typically, an investor renting out a unit in a 1-4 unit building will not achieve quite those numbers, given that those luxury units come with amenities. But it is possible to get damn close if you present a well-renovated and designed unit with off-street parking in a desirable location like the downtown Historic district or Starland/Thomas Square.
We anticipate that these rental rates will continue to increase in the desirable locations near downtown where neighborhoods are very walkable due to one main fact: the only new inventory coming on the market is in redevelopment of existing structures or renovations. There is no new land to build on.
5. Higher Education
Savannah is home to three universities: Savannah State, Georgia Southern – Armstrong Campus, and the Savannah College of Art and Design (SCAD). SCAD is the biggest player and has a major impact on the economy and Savannah real estate in general.
SCAD’s campus is spread out throughout the roughly 2-square-mile area encompassing the downtown historic district, Victorian district, and Streetcar district, and owns roughly 130 buildings. Since its founding in the 1970s, SCAD has grown to a current enrollment of roughly 14,000 students paying a tuition of $52,000/yr.
The impact SCAD has on the local economy is basically threefold. First, the tuition is so damn high that you know these kids (or, their parents more accurately) are paid. They have money, and they spend it. They will spend good money for a good apartment, and they spend money on food and drink. Typically they make good tenants.
Second, SCAD is a major player in the redevelopment of run-down buildings and neighborhoods. If you happen to own a property near a place that SCAD buys to redevelop, you just hit the jackpot. Most recently, they purchased the rundown Chatham apartments for nearly $39 million dollars and are undertaking a total renovation of the building to turn it into student housing. And student housing is stupid expensive, like, $9k per student per year in their triple occupancy dorm rooms up to $15,434 per year for single-occupancy rooms.
Third, SCAD brings a lot of culture to the town, being an internationally-renowned art school. A lot of these students end up sticking around and some of them start successful small businesses. SCAD also ties in nicely with the blossoming local movie/TV industry.
6. Major Employers
Savannah has a diverse economy. In addition to a robust tourism industry that generates 27,000 jobs, Savannah is home to major employers: Gulfstream Aerospace (8000 employees), Memorial and St. Joseph’s health systems (8100 employees), the universities (3800 employees), and Fort Stewart/Hunter Army Airfield (home to tens of thousands of soldiers).
7. Desirability as a WFH destination
Working from home is not exactly a new concept, but its adoption has obviously rapidly increased due to the COVID-19 pandemic. Savannah is a desirable work-from-home destination for a multitude of reasons, including the low cost of living compared to larger cities like NYC or even Atlanta, beautiful and quaint city streets, and easy access to many major cities (as discussed earlier when we discussed the airport).
There’s also just a lot of great food and fun things to do in Savannah! Check out this interactive map showing some of my own favorite places and things to do: