I am fortunate to have grown up in Greenville, giving me the opportunity to observe and appreciate what our community, led by downtown, has become — simply, extraordinary! We are each blessed to be a part of this city and its vibrancy.
As we continue to grow, I believe it is of utmost importance that we strive to maintain a healthy supply/demand balance in each major real estate sector — office/employment, retail, dining and entertainment, lodging and residential. While pain is unavoidable in economic downturns, and downturns are inevitable, equilibrium will make us much more resilient, and less prone to disrepair and closures during the next such period.
In regard to balance, it does not take an analyst to see that there are many, many apartments available and coming available in our CBD. In fact, the number has grown from some 1,600 residential dwellings (with 900 being owner/occupied) just a few years ago to 5,500 today, with more to come. Of these latest 4,000, only 400 or so are owner/occupied. Not surprisingly, in a recent national apartment publication, Greenville’s apartment market had more rental concessions offered per capita than any market tracked. Might this be foretelling? Even so, I am not suggesting that there is anything whatsoever wrong with renters, however, they are logically more fluid inhabitants than owners. That makes this volume of recent apartment additions more susceptible to the above cited supply risks.
The downtown restaurant industry seems to sometimes be one of revolving doors, with good operators departing, being quickly replaced by the next concept. We certainly have some excellent eateries but the overall sustainability surely must be challenged by what seems to be an oversupply, a condition ripe for empty storefronts in the next downturn.
The lodging business, the sector of which I am personally most familiar, is in a similar state. Not to take anything away from #YeahthatGreenville’s great brand success, but I found some statistics attributed to VisitGreenville in a recent GSA Business Report article to be incomplete in their conclusion.
If you read the article then, yes, demand for downtown hotel rooms has grown and there is no doubt in my mind that the #YeahthatGreenville campaign has positively contributed. That growth has absorbed most of the 410 rooms added to the market since November 2015 — 410 new rooms representing a 47% room supply increase to the then existing 860 room downtown inventory. Windsor Aughtry Hotel Group operated two hotels before 10/15. Our two downtown hotels that existed were both in 2016 as the market tried to digest the increased supply. And, they are both down further 2017 YTD. Nonetheless, I do believe stability in current supply and demand will occur within the next few quarters, barring economic or event disruption. (For the sake of full disclosure, WAHG added 40% (156 rooms) of the 47% (410 rooms) of new Room Supply through our Embassy Suites RiverPlace. However, work on that project was started in 2010, long before the waterfall of new rooms were announced.)
As this article cites, there are 876 additional NEW rooms coming on the market — a 70% increase to the existing supply and more than doubling downtown’s total inventory of just two years ago. The “demand absorbs supply” prediction of the article is all the more hazardous in that we are in the ninth year of an economic recovery. No lodging demand sector is more vulnerable to downturn than the discretionary dollars of leisure travel, the primary demand growth source for GSC. And, there is no demand trend that can start to justify the sort of supply growth we are experiencing.
The lodging industry is infamous for overbuilding itself. That trend is taking place nationally as I write. However, as a percentage of new supply to existing inventory, I know of no market that compares to Greenville — 150% opened or under construction in two years, going from 860 to over 2,000 rooms.
In all of the above asset classes, the actual owners — the restaurant landlord, the apartment owner, the hotel owner — are dependent on economic success (rental income) in order to maintain the property in a crisp, current state. In an oversupplied market, the reserves necessary to preserve and refurbish properties are simply not available — survival becomes the focus.
Greenville is a wonderful, wonderful place — I have a heart for the city and its surrounds. But if you will digest the facts above — just the statistical data — there is a just cause for concern in letting our success unhealthily expose us economically.
Other cities’ leadership, such as Charleston, have taken steps to try and avoid the plight that comes with over building. I would encourage our city leaders to consider the same, so that we do not jeopardize this wonderful place we call home.
Bo Aughtry is the principal of Windsor Aughtry Hotel Group in Greenville.