Savannah, Georgia
The “Hostess City” is Primed for Growth, Perfect for Investors
by Carole VanSickle Ellis
In March 2020, the outlook seemed uncertain for the Savannah, Georgia, economy. Analysts looked at the city that is host to the largest and fastest-growing container terminal in America, the Port of Savannah, the birthplace of Juliette Gordon Low, the founder of the Girl Scouts USA, and home to the famous Savannah Victorian Historic District and wondered exactly what the emerging global pandemic would do to the city. At the time, the outlook was somewhat grim.
Analysts at BestNeighborhood.org predicted severe economic damage both in terms of unemployment (a projected 9.9% loss of jobs, possibly permanently) and in loss of business, also potentially permanent. The port’s activity was also in question; although many port jobs were classified as essential, there was some concern that the flow of goods into the city and outward across the country might diminish permanently. “With production in the Chinese factories shut down or, at least, inhibited, then the goods and services just don’t flow,” warned Georgia Southern University economics professor Michael Toma at the time. Naturally, economists feared the worst for the local hospitality industry as well.
Just over a year later, however, Savannah has proved itself once again among the most innovative, resilient, and recession-proof mid-size markets in the country. For starters, the city’s unemployment has hovered around 5%—lower than the state of Georgia’s average and the national average. With Roofstock.com calling Savannah a “market to watch” and home values projected to rise at more than 10% in 2021, the city appears to be coming out of a tough 2020 with flags flying.
“Savannah was a good market before COVID, which is why we were embedded in the city long before the pandemic,” observed Charles Sells, CEO of Platinum Investment Properties (PIP) Group. Sells, whose boutique investment firm has been helping clients acquire properties in Savannah for decades, said this spring has been rife with stories of buyers missing out on Savannah properties simply because as soon as they are listed, they sell. PIP Group itself is buying “as fast as possible,” he added.
“When COVID-19 hit, I felt like I had to put my money where my mouth was,” Sells explained. “I have always pushed Savannah as a recession-proof market thanks to the Savannah College of Art and Design (SCAD), the Port of Savannah, the local army bases, tourism, and a lot of local employers that do not tend to be directly impacted by economic swings. The hardest thing right now is acquiring properties and then getting the work done on them to flip or rent.” The average wait time on permitting in the city at present is several months, and most contractors are booked at least nine months out. Because inspections must be completed after each phase of construction, investors must also factor in about a month delay after every completion of work, meaning that once the electrical work is completed, plumbing work cannot begin until the electrical changes have been inspected or approved—quite possibly a full month later.
“We are so fortunate to have been established here already,” Sells said. “Other firms in the area are doing five or six deals a year right now. We are doing 80 and that is with really low inventory on the market.” He noted that currently most investors, including those with his firm, are paying close to retail prices for properties just to remain competitive in the market. However, investors must buy properties with room to force appreciation in order to make this tactic work; buying a freshly renovated property at market value leaves no room for the acceleration of equity.
Incentives for Investment & Support for Success
Savannah has long been dedicated to the success of local businesses and the growth of the surrounding community, and this mindset is also modeled by Georgia policymakers. “The State of Georgia as well as cities and counties within the state offer incentives to new companies and established businesses,” the World Trade Center Savannah describes the position on its website. “Therefore, even after established, you can still take advantage of incentives designed to help your company grow.” At present, the WTC Savannah identifies 23 distinct financial incentives and tax advantages available to businesses and, in many cases, investors in Savannah.
“The Savannah metropolitan statistical area (MSA)…is an economic star…which includes tourist attractions, a major airbase, an aerospace manufacturing center, a modern deepwater port, and a regional hub for health and educational services,” writes GeorgiaTrend contributor Jeffrey Humphries. “[This combination] provides the foundation for Savannah’s continuing success.”
While the aforementioned incentives are not new ones, Savannah did debut a timely new program in honor of the many changes going on throughout the nation as the pandemic continued to spread. The program, established by the Savannah Economic Development Authority (SEDA), was dubbed the Savannah Technology Workforce Incentive. SEDA made no bones about the goals of the incentive: The program reimbursed moving costs for tech workers leaving other markets in order to create a new home base in Savannah up to $2,000.
“The incentive is a great way for technology workers that can work remotely to think about relocating to Savannah as a permanent location,” said SEDA president and CEO Trip Tollison. “We know once these technology workers arrive, Savannah—and its diverse offerings and high quality of life—will sell itself.” Savannah was named SmartAsset’s top “City for Creatives” in 2019 and combined a tech-friendly location with low cost-of-living metrics and a made-to-order workforce for tech entrepreneurs thanks to SCAD, where students are already working on a variety of business solutions with companies and associations like Uber, Google, Delta Airlines, Coca-Cola, and NASA, to name a few. SEDA also offers $12,000 toward office rental for technology firms creating a minimum of 10 new positions, and the High Wage Job Creation Grant offers $20,000 in cash grants for every five high-tech jobs a company creates and retains for a full year.
SEDA also notes the substantial presence of healthcare technology employers in the region. These companies contributed an estimated $1.5 billion in personal income to the Savannah MSA, and nine of the top 100 healthcare innovation companies are headquartered in Georgia. Furthermore, Site Selection magazine an industry publication dedicated to corporate real estate and economic development, recently ranked Savannah its “top metro by projects per capita (tier 2),” up 11 places from the year before. The magazine specifically cited the Port of Savannah, Gulfstream Aerospace, and the “growth of e-commerce and recent developments like the Savannah Chatham Manufacturing Center” as indicators of ongoing positive growth in the region.
Positioned for Post-Pandemic Growth
One of the biggest questions for the regional markets that have thrived during the COVID-19 pandemic remains, “What happens when COVID is over?” Assuming, for the moment, that the “new normal” reverts to something resembling the “old” one, such a shift back to previous consumer behaviors, business operations, and buying patterns could result in an abrupt halt for certain pandemic-fueled markets. The question for Savannah investors is, of course, “Is Savannah one of those markets?” Fortunately for investors in this region, the answer appears to be a resounding “No.”
“Will we plateau at some point? Sure,” said Sells, “but we have at least nine years left in the run after the COVID craziness ends.” He pointed out that the South Carolina/Georgia planned port expansion is in the works with the Georgia Port Authority recently approving $205 million for the project. At present, the workforce that will enter the area to support that project and, ultimately, that port, will number in the thousands. Also at present, there are few convenient places for that workforce to live in either multifamily or single-family housing.
“There is no convenient development [for that population] yet,” Sells noted. “There is a lot of opportunity for investors who want to build if they can find the capital to do it. This is going to keep our market stable, especially because a lot of the needed housing will be workforce housing.” It is worth noting that most of that workforce will be classified as essential, which will likely insulate it from future public-health-related economic shutdowns.
As is typical for Savannah, when a need is identified in the private sector, multiple factions pile into the arena to create a solution. For example, SCAD is converting old dormitories into studio apartments designated as workforce housing through the college’s SCAD SERVE Initiative. Located in Savannah’s highly desirable Historic District, the apartments are designated for police officers, firefighters, port workers, and hospitality workers. However, those initial 21 apartments are unlikely to put a dent in the housing demand. SCAD Serve director Scott Linzey said the group made the initial effort in hopes that if they began the process and established an actionable plan for creating affordable housing, “others [would] follow.” To effectively solve the problem, those “others” will, of necessity, be real estate investors and developers operating on a scale (and in a location) that will permit the expansion of affordable housing options.
“Port expansion requires affordable housing, and there will be affordable housing likely on the west side of the city,” Sells said. “That is why this is one of the best markets for opportunity out there right now.”
Sidebar 1:
Savannah, Georgia by the Numbers
1st
Ranked first in the nation among secondary markets as the best locale for new industry and development (Site Selection magazine, 2020)
6
Number of years in a row Georgia has been named the “best state for doing business” (AreaDevelopment.com)
4
Number of colleges and universities in Savannah.
9
Number of interstates and major highways running through Savannah.
46%
Percentage below the national average of Savannah’s median home price (Forbes)
12%
Percentage below the national average of Savannah’s cost of living (Forbes)
6
Savannah ranks 6th on Realtor.com’s Top 10 list for first-time buyers
6,000
Number of new residents expected to move to Savannah in the next five years.
12,000
Number of new residents expected to move to Savannah in thenext nine years.
99.11%
Savannah’s sale-to-list-price ratio (Roofstock)
43%
Percentage of Savannah housing units renting.
19th
Savannah’s position on the Forbes list of best places for cost of doing business.
Sidebar 2:
A Brief History of “The Hostess City” of the South
Legend has it that when General William Tecumseh Sherman of the Union Army reached Savannah at the end of his fabled “March to the Sea” that ended the Civil War, he called a halt to his “scorched-earth” policy that left the rest of the state in ashes because Savannah, Georgia, was simply too beautiful to burn. That, however, is pure legend. Contrary to legend, Sherman did not raze the state in its entirety, although the legend is largely his responsibility since he famously promised to “smash things to the sea” once he crossed the state line. However, the truth of why Savannah did not burn is not as “pat” as any tall tale.
In truth, no one knows exactly why the Union did not raze Savannah, but there are two particularly good and likely possibilities. First, the Port of Savannah was already an invaluable asset as a naval base and a supply center. It made no sense to destroy it when Union forces could, instead, begin to use it for their own ends. Second, the U.S. Department of the Treasury had sent an agent to the town in order to claim “spoils” from the city for the Union. That agent suggested Sherman present Savannah, as a “gift” to President Abraham Lincoln. Sherman agreed, and the city was largely spared. As Dean Coon of Savannah’s Travel Thru Time Tours in Savannah observed, “Why destroy it if you are going to gift wrap it?” More than 160 years ago, the Port of Savannah was already providing safety, security, and economic protection to the city of Savannah.
Sidebar 3:
The True Scale of the Port of Savannah
When most people think of a port, they think a docking place for ships on the coast of a body of water. They likely think vaguely of the import-export business, but most do not realize that the scale of a port like the Port of Savannah, which is currently the single largest and fastest-growing container terminal in America, actually encompasses far more than a single entry point to the country.
In fact, Savannah’s port plays such a crucial role in the freight industry and the U.S. economy that it has expanded to include six distinct satellite terminal facilities and “inland distribution facilities” designed to keep the flow of cargo continuing uninterrupted. These satellite terminal facilities include:
- The GPA’s Garden City Terminal
- The GPA’s Ocean Terminal
- The Target Corporation Facility
- The IKEA Facility
- The Heineken Facility
- The Savannah Port Terminal Railroad
A recently announced $205 million expansion project will expand the Garden City Terminal, bring in new equipment, provide training and hiring resources for new workers, and, ultimately, help pave the way for the upriver Jasper Ocean Terminal. This terminal was scheduled for completion between 2035 and 2037, but the Georgia Port Authority and its South Carolina counterpart are working to accelerate progress to meet new consumer buying behaviors exacerbated by the COVID-19 pandemic.
“Right now, we are moving container volumes that we did not expect to see for another four years,” said GPA executive director Griff Lynch. “With consumers spending less on travel and services, they are devoting more of their income to goods purchases, which has resulted in increased container volumes.” Most economists expect this trend to continue post-COVID due to permanent changes in buying behaviors.
Sidebar 4:
Savannah, Georgia’s Top Employers
These are the top 10 employers, by volume of jobs created, in Savannah, Georgia:
- St. Joseph’s Candler Hospital
- Memorial University Medical Center
- Wal-Mart
- Walmart Distribution Centers
- East Georgia Regional Medical Center
- Optim Health System
- Publix
- McDonalds
- Kroger
- Target Distribution Center
3-Bedroom Single-Family Rental Prices
The Savannah MSA is the third most populous of fourteen Georgia MSAs (ranked after Atlanta and Augusta) with a population of 393,353.
Current 3-bedroom SFR rental prices average $1,419 for the MSA, up 4.26% from 2020 and 20.25% over the last five years. Top end rent areas are in Tybee Island with an average rent of $1,707 and Savannah (Zip Code 31410) at $1,663. The least expensive areas are in Pembroke and Savannah (Zip Code 31404), both at $1,222.
5-Year Rental Price Appreciation
In the last five years, 3-bedroom SFR average rental prices over the Savannah MSA have increased by 20.25%.
5-year rental price increases have increased the most in Savannah (Chatham County) in Zip Code 31401 by 26.71% and in Zip Code 31409 by 24.82%. The cities with the smallest increases were Pembroke, at 8.24%, and Ellabell at 9.72%. In Savannah, the smallest increase was in Zip Code 31405, which has an unemployment rate of 7.5%.
Rent-To-Income
As of 2019 census data, the Savannah MSA had a median household income of $60,371, slightly less than the State of Georgia and 90% of the amount in the U.S.
The 2021 SFR rent-to-income ratio is at 28.21% compared to 27.05% for 2020 and 26.37% for 2018. The highest R/I ratios were at 54.2% in Zip Code 31415 (Median Household Income at $22,885) and 49.41% in Zip Code 31401 (Median Household Income at $22,623). The lowest R/I ratio was in Guyton, at 19.74%.
Yields
The 2020 median home price in Savannah was $239,000.
Gross Rental Yields (GRY) across the top 200 U.S. markets average 8.6%. The current average GRY in the Savannah MSA has a slightly better overall average yield of 9.78%. The two highest yield areas are in zip codes 31415 and 31404 at respectable yields of 19.52% and 14.1%, respectively. Dark purple sections represent yields at 12%, light purple areas have moderate yields of 9%-10%. Finally, white shaded areas have yields around 8.5%.
