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HVS In-Depth United States Hotel Valuation Index:
Charleston is known internationally as a tourism destination and has received accolades such as Condé Nast Traveler magazine readers ranking Charleston the top tourist town in both the United States and the world, as well as Travel + Leisure ranking Charleston the "Number 1 City in the U.S." Furthermore, the greater Charleston area, which is home to Joint Base Charleston, the Medical University of South Carolina, Boeing, and Volvo, also benefits from robust military, educational, healthcare, and retail sectors, as well as strengthening manufacturing, energy, and technology industries. With expansions at Boeing and the Daimler AG Mercedes-Benz division; the entrance of Volvo; the construction of the new MUSC Shawn Jenkins Children's Hospital and Peral Tourville Women's Pavilion; expansions at the Port of Charleston, and the significant number of new businesses entering the market, including hotels, restaurants, and stores, unemployment is at an all-time low, resulting in a scarcity of quality employees. However, with the relatively affordable cost of living and the diverse economy, which is attractive to business professionals and families, a significant number of housing developments are under construction and numerous people are relocating to the area. Therefore, despite the current employment challenges, the presence of large manufacturing companies, military entities, medical institutions, and colleges and universities should continue to promote growth for the Charleston area in the near future.
In 2010, the Charleston market came out of the recession strong, in large part due to the entrance of Boeing in 2009, which created a significant amount of demand for the area. New airlines providing service at the Charleston International Airport and increasing passenger traffic has also continued to support demand in the area; in April 2019, the airport introduced its first international flight, direct service to London's Heathrow Airport. In 2015, 2016, and 2017, the Charleston area was heavily impacted by storms in the fourth quarter, which increased demand for the greater market, as well. However, in 2018, the threats of Hurricane Matthew and Hurricane Florence caused mandatory evacuations of hotels in Downtown Charleston, resulting in a significant decrease in occupancy. While demand increased overall in 2018, the increase was not as strong as in previous years. As companies such as Boeing and Volvo expand in the area, and as Charleston remains a popular tourist destination, we anticipate demand to continue to strengthen, though at a slower rate than supply growth.
Supply growth continues to intensify in the market, adding guestroom inventory in each of the submarkets. In 2018, the Charleston market experienced its highest supply increase, at roughly 4.5%. While a 50-room ban was placed on new hotel growth on the peninsula in 2015, several projects had been preapproved, including the 179-room Hotel Bennett that opened in early 2019. Furthermore, the Port Authority building will be demolished at the end of its lease, and a new 200-room luxury hotel is expected to open in 2022. The addition of these luxury hotels and several other luxury and upscale properties over the last few years, including The Dewberry and Hotel Bella Grace, have all positively affected average rate (ADR) in the market. However, in 2018, ADR growth was lower than in historical years given the entrance of a significant amount of new supply. Several new hotels opened in Mount Pleasant and Summerville, causing many hotels to lower rates in order to maintain occupancy. With the high barriers to entry, new hotels must command a high average rate in order to be feasible. While Charleston is not a top-25 market, many large REITs and development companies seek to own and/or manage a trophy asset in the city. We anticipate occupancy to continue to decline slightly in 2019 and 2020, followed by stability in 2021, as the market absorbs the new supply.
The pace of transactions in the Charleston market remained modest in 2018 and slowed in the first quarter of 2019, with most local activity occurring in North Charleston and Summerville among the nationally branded, limited- and select-service assets. However, the dual-branded Hyatt House/Hyatt Place in Downtown Charleston sold in 2018 at nearly $400,000 per room, representing the highest sales price per key in the greater Charleston area since 2015. Despite an anticipated decline in overall RevPAR in the market, we expect future sales to command slightly higher transaction prices because of the desirability of the area combined with the limited availability of assets coming to market. We do not anticipate high turnover, as most owners prefer to retain their assets in this market.
* Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent “big picture” data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities. The HVI for the U.S. is a measure of the strength of the lodging industry as a whole and, specifically, the hospitality investment market. The HVI for the various identified markets can provide a basis to evaluate and compare different geographic regions. For more insight on the limitations and applicability of the HVI, please read the message on the HVI home page by clicking on the graphic at the top of this page.
The widespread impact of the coronavirus (COVID-19) has had an unprecedented impact on hotels and hotel values worldwide.
Consequently, the latest HVI analysis may no longer reflect the most current measure of lodging industry strength or the
hospitality investment market.
In each of our offices across the globe, we are working tirelessly to analyze the impact of recent events and provide timely
insights to help you navigate these uncharted waters. Because it is unclear how long the pandemic will last or how long related
restrictions will be in place, we are updating our analyses on a weekly basis using the most current data.
Additionally, examination of value trends in prior cycles can provide useful information. Historical patterns, together with
an understanding of the market’s current expectations for the eventual recovery of the industry and its performance, can provide
insights on the likely trajectory of decline and recovery for hotel values.
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ADR, Demand, Occupancy, RevPAR, and Supply Projections:
|Market Demand Change
|Hotel Occupancy Increase/Decrease
|Market Supply Growth