Statewide hotel revenue up 7.8% in September compared with 2013 numbers

Charleston Regional Business Journal -- Hotel revenue was up in September across South Carolina, while admissions tax collections and state park revenue were both down, according to a monthly report from the S.C. Department of Parks, Recreation and Tourism.  Statewide, hotel occupancy increased 2.8% in September from the previous year, and average daily room rates were up 4.8%, creating a 7.8% increase in revenue per available room, to $58.56, the report said. Year-to-date, average revenue per available room has been $66.17, an increase of nearly 11% from the previous year. The Walterboro-Hardeeville and Columbia areas saw revenue per room increase more than 20% during the month; Greenville, Spartanburg and North Charleston saw an increase of 10% or more, according to the report.  Smith Travel Research, which tracks hotel industry data, predicts a 1% decrease in hotel occupancy rates in December, to 41.4%. The company forecasts that hotels will rebound in January to 43.2%, a 2.2% increase from the previous January, and in February to 54.7%, a 1.9% increase. Admissions tax collections in South Carolina decreased almost 10% in September to about $2.6 million, and admissions tax collections from golf decreased by 19%, the report said.  Revenue from state parks totaled about $2.4 million in September, a 1.2% decrease from September 2013. The report said admissions and retail sales at state parks increased slightly during the month, but revenue from campsite rentals decreased.  Deplanements at most major airports in the state were up in September and for the calendar year, the report said. Charleston International Airport had the largest increase, 7.7%, for the first nine months of the year when compared to the same period in 2013.

Deplanements at major airports across S.C.

Airport Charleston Columbia Greenville/Spartanburg Hilton Head Myrtle Beach Total

Sept. 2014 131,767 44,810 78,975 4,448 75,428 335,428

% change from Sept. 2013 12.0% 9.2% 5.2% -10.4% 4.4% 7.8%

Year-to-date (Jan.-Sept.) 1,161,839 398,535 691,463 44,293 716,163 3,012,293

Year-to-date % change 7.7% 2.2% 3.0% -3.8% 6.1% 5.3%

Source: S.C. Department of Parks, Recreation and Tourism

Net Lease Retail Assets in Demand; Cap Rates Continue Falling

National Real Estate Investor -- The announcement of a merger between Cole Credit Property Trust III Inc. and Cole Holdings Corp. highlights continued popularity of the net lease sector. In the fourth quarter, publicly traded REITs that specialize in triple net leased properties outperformed most other REITs, exceeding consensus estimates, according to a report by Rich Moore, an analyst with RBC Capital Markets. And investor interest in net leased retail assets remains high, in spite of falling cap rates, according to market reports from several different sources.  The Boulder Group, a Northbrook, Ill.-based real estate investment firm specializing in the single tenant net lease sector, reports that in the fourth quarter of 2012 the number of available retail assets on the market fell 12.53 percent compared to the third quarter of the year, to 2,848 properties. Cap rates fell 25 basis points quarter over quarter, to 7.25 percent from 7.50 percent.  “The cap rate compression continues to occur,” says Brad Pepin, director with Stan Johnson Co., a national commercial real estate firm specializing in net lease properties. “It’s driven by financing that’s available and there is a lot of money right now with REITs and institutional buyers out there and these large institutional REITs need to place that money as fast as they can and that contributes to demand.”

The nearest Walgreens

The trend is particularly noticeable in the drugstore sector. Drugstores happen to be among buyers’ preferred net lease assets, due to their decades-long leases and investment grade credit ratings. Yet The Bolder Group reports that in the last three months of 2012, the number of drugstore properties available for sale declined significantly compared to the second quarter of the year, partly as a result of the massive amount of consolidation occurring among net lease REITs, the report notes.  Net leased CVS assets were most scarce in the fourth quarter, with only 30 of the chain’s stores coming to the market—a 71.7 percent drop compared to the second quarter of 2012. There were 38 Rite Aids available for sale—a 48.6 percent decrease from the second quarter, and 86 Walgreens stores, representing a 50.3 percent decrease in availability.  While Pepin hesitates to say there is a shortage of supply—it’s still possible to find appropriate properties for investors seeking stable tenants with long-term leases—he does note that clients have to be prepared to pay a premium for the most sought-after assets.  In the fourth quarter, cap rates on deals involving drugstores averaged 6.93 percent, a premium of 32 basis points over all net leased retail assets, according to The Boulder Group report. Cap rates on sales of net leased dollar stores nationwide were in the 8 percent range, according to a report from Marcus & Millichap Real Estate Investment Services, an Encino, Calif.-based brokerage firm, approximately a 30 percent decrease from the fourth quarter of 2011.  Cap rates on sales of quick-service restaurants varied from the low 4 percent for McDonald’s sites to 9 percent for mom-and-pop establishments.

The only segment of the market where cap rates have gone up 20 basis points year-over-year was the big-box category, according to Marcus & Millichap research. The median price for net leased big-box properties has also dropped 7 percent, to $54 per sq. ft.  “Drugstores are the most widely traded, commoditized product,” says Brian Shanfeld, vice president of the capital markets group with real estate services firm Jones Lang LaSalle. “That’s what drives some of the pricing; investors understand Walgreens and CVS, the leases for drugstores are not very nuanced. And maybe other industry segments may change a lot with technology, but you are always going to want that convenience retail on the corner. You know you are buying a consistent, stable current return and yet you’ve got a real estate asset with appreciation [potential].”  Shanfeld and Pepin expect that the heated demand for net leased retail will continue as long as interest rates remain low. Marcus & Millichap projects that cap rates on drugstores in particular will continue to fall. According to Marcus & Millichap researchers, “a measurable increase in cap rates is not anticipated until the Fed moves interest rates higher, which is currently scheduled for mid-2015.” GlobeSt.com -- Cap rates for net lease properties have been falling for quite some time, often hitting historic lows, but investors find few sectors as appealing as drug stores. And according to the most recent report from the Boulder Group, a commercial real estate services firm located in suburban Northbrook, IL, in the third quarter of this year cap rates for many top drug store brands fell again.  “Walgreens cap rates remained stable at their previously reached historic low level in the first quarter of 2014,” according to the new report. But cap rates for CVS and Rite Aid properties sank 15 bps and 35 bps, respectively, since hitting their own historic lows in the first quarter. The Walgreens rate now stands at 5.6%, with CVS at 5.75% and Rite Aid at 7.4%. 1031 exchange buyers and private investors remain the primary buyers.  “Investors are attracted to these properties partly because they are one of the few opportunities with tenants that sign leases of 20 years or more,” Randy Blankstein, president of Boulder, told GlobeSt.com. In fact, although the overall rate for Walgreens properties remained stable, rates for Walgreens properties with more than 20 years of lease remaining compressed by 20 bps to 5.3%.

All Segments of U.S. Lodging Industry Benefiting From Strong Economics

PKF Hospitality Research Forecasts Broad-Based RevPAR Growth

All segments of the U.S. lodging industry will enjoy strong performance for the foreseeable future according to the recently released December 2014 edition of PKF Hospitality Research's (PKF-HR) Hotel Horizons^® (PKF-HR is a CBRE company). Rising levels of employment, combined with increased geographic expansion of the national economic recovery, will result in revenue per available room (RevPAR) growth in excess of long-run averages for all hotel chain-scales, most location categories and the vast majority of markets from 2014 through 2017.  "No matter what hotel performance indicator you look at for any type of hotel, we foresee extremely favorable movements the next few years," said R. Mark Woodworth, president of PKF-HR. "Our firm is projecting demand growth to outpace changes in supply in the U.S. through 2016. That will result in industry wide occupancy levels at, or above, all-time record levels through 2017.  "With scarcity now a reality for consumers in many markets for a growing number of property types, hotel operators will have the leverage they need to drive room rates well above the pace of inflation," Woodworth added. "Real average daily room rate (ADR) growth driving RevPAR will contribute to a six year period of double-digit increases in hotel profits; something we have not seen in the 78 years PKF has been tracking the U.S. lodging industry."  The December 2014 Hotel Horizons^® report forecasts ADR to increase by an annual average of 5.4 percent from 2014 through 2017. In turn, PKF-HR is forecasting unit-level net operating income to increase at an average annual rate of 11.8 percent during this same period.

It's the Economy
 "Moody's Analytics, our economic forecasting agent, projects that the U.S. is on track to reach full employment by 2016," said John B. (Jack) Corgel, Ph.D., the Robert C. Baker professor of real estate at the Cornell University School of Hotel Administration and senior advisor to PKF-HR. Moody's forecasts show that by year-end 2014 the national unemployment rate will drop down to 5.9 percent from a great recession high of 10.0 percent in 2009.  "What impresses me most is the profile of the populations that recently have seen the greatest declines in unemployment," said Corgel. "Individuals at the lower end of the income spectrum, and those with the lowest levels of education, lately have enjoyed the greatest gains in employment. This is completely opposite of the employment patterns we observed in 2009 and 2010."  Previous research conducted by PKF-HR found that changes in employment have the greatest impact on the performance of hotels in the lower-priced chain-scales, while changes in income influence the demand for upper-priced lodging facilities. "Employment gains now have reached all segments of the population, which translates into strong RevPAR forecasts for all segments of the U.S. lodging industry," Woodworth surmised.  The favorable impact of employment gains is evident in the forecast performance of individual lodging markets across the U.S. "Half of the 20 Hotel Horizons^® markets forecast to enjoy the greatest increases in employment, also are projected to benefit from the greatest increases in lodging demand," Corgel noted. "Further, according to Moody's, close to 90 percent of the local economies in the U.S. currently are classified as being in either a recovery or expansion phase. Accordingly, we will see 15 of our 55 Horizons^® markets achieve all-time record high occupancy levels in 2015."

Peak Persistence Over Oil
"The current favorable economic outlook is not only deep, but long as well," Woodworth concluded. "That will result in an extended period of peak performance for all participants in the U.S. lodging industry. As if that were not ample good news, the world oil market dynamics are generating prices for transportation fuel that work to the benefit of travelers. If low energy prices are sustained, 2015 hotel performance will be better than expected.

Myrtle Beach leads the US in new home construction permit growth

SUN NEWS -- The Myrtle Beach metro area led the nation in the rate of increase in new home construction permits from 2013 to this year, according to newhomesource.com, and the new residents moving into those new homes are helping fuel the area’s reblooming jobs market, recently named sixth fastest growing in the U.S.  “It looks like you guys have been sitting back for so long, builders are getting property back on line and there’s pent-up demand,” said Blair Kuhnen, marketing director for the new homes listing website.  The 100 percent growth in the Myrtle Beach metro area -- from 201 permits a month in 2013 to 402 in September -- was more than double that in No. 2 Grand Rapids, Mich., which had a 49 percent growth, Kuhnen said.  Greenville came in third, with a 36 percent growth in new home construction permits.  The home construction ranking comes shortly after another national ranking for the area for job growth. The Myrtle Beach Metropolitan Area had the sixth highest rate of job growth in the U.S. between August 2013 and August this year, according to the U.S. Bureau of Labor Statistics.  While new home construction in The Market Common makes the city of Myrtle Beach a major contributor to the overall growth, new and expanding subdivisions are evident from the south end to Conway to North Myrtle Beach.

Horry County, which issues permits in unincorporated areas, saw a 74 percent increase in the number of home construction permits issued in August, 239, versus the 137 issued in August 2013.  The higher permit numbers are a significant boon to the county’s bottom line as well. Permit revenue ran in the low to mid $100,000 range a month for much of 2013. That figure now is routinely above $200,000 each month.  “It feels good to see some stability in the market,” said Grand Strand builder Berkley White of Classic Homes.  White, a former president of the Horry-Georgetown Home Builders Association and the 2013 S.C. Builder of the Year, said his business has increased 25 percent to 30 percent this year, and he’s hearing that business has picked up noticeably in all price ranges.  Kuhnen said that it used to be that metro areas in Florida and California dominate the list of growth in home construction permits.  But emerging from the recession, those markets still are trying to clear out an overabundance of foreclosures, and the action has moved to smaller markets such as the Grand Strand and metropolitan Greenville.  The Myrtle Beach activity peaked in July, according to newhomesource.com when more than 500 new permits were issued.

White said the demand for new homes has slowed somewhat since then, and he’s thinking that 2015 may look flat when compared to this year.  But compared to any of the few years before that, home construction next year should still have a healthy pace.  He said Classic Homes has added one employee to help with its growth, fewer than it may have put on staff to handle the pre-recession boom.  “I think people are working smarter (now) than in ‘05 and ‘06,” he said.  The big numbers of hires, though, would be among subcontractors -- framers, roofers and the like -- who are responsible for the actual construction.  White said most of his new homes are going to buyers new to the area. Either they are retirees or near retirees who buy a second home where they’ll retire in three to five years.  “We don’t have a lot of trade-ups here,” he said of the area’s housing market.  But the new residents for those new homes stimulate the demand for more goods and services, which means more jobs that can create the need for more new homes.

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Myrtle Beach Economic Growth Indicators Leads South Carolina

SUN NEWS -- The Myrtle Beach metro area led the state in three of four economic indicators, and was second in the fourth, when comparing statistics from October and the same month a year ago, according to information released Wednesday morning by the Darla Moore School of Business at the University of South Carolina.  The information was prepared as part of the school’s 2015 statewide economic outlook which will be presented in full at the 34th Annual Economic Outlook Conference in Columbia on Tuesday.  The Myrtle Beach area topped the state’s metro areas in employment growth, retail trade gains and decline in unemployment and came in behind Greenville for growth in residential building permits.  The Grand Strand recently was cited in other studies as having the sixth highest rate of job growth and the top growth in residential building permits nationally. Those studies compared different times in 2013 and 2014, which would account for the differences with the USC information.  “If you liked 2014, then you’ll like 2015,” said Joseph Van Nessen, an economist in the Moore School’s Division of Research, who prepared the outlook with Doug Woodward. “South Carolina’s economy hit its stride this year, and we expect that trend to continue.”  Van Nessen said that consumers are now in better shape than in recent years with less household debt and increasing home values, which translates to more disposable income.  The statewide outlook calls for job growth in 2015 mirroring that in 2014, 1.9 percent versus the 2 percent seen this year.

SC growth indicators - Comparing October 2013 with October 2014:
EMPLOYMENT GROWTH
1. Myrtle Beach, 4 percent
2. Augusta, 3.5 percent
3. Florence, 2.4 percent
RETAIL TRADE GROWTH
1. Myrtle Beach, 3.2 percent
2. Charleston, 2.7 percent
3. Spartanburg, 2 percent
UNEMPLOYMENT RATE DECLINE
1. Myrtle Beach, -0.9 percent
2. Spartanburg, -0.8 percent
3. Rock Hill, -0.8 percent
RESIDENTIAL BUILDING PERMIT GROWTH
1. Greenville, 57.7 percent
2. Myrtle Beach, 43.8 percent
3. Charleston, 43.4 percent
Source: Darla Moore School of Business

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