Hilton Head tourism up slightly, bucking trend among competing venues; real estate continues to lag

Hilton Head Island has two main economic engines -- tourism and real estate -- and both sputtered during the past year.

More recently, however, there are signs the local economy is coming back to life.

In the waning weeks of the peak summer season, business owners, tourism officials and real estate agents say they're less pessimistic than before, though still not ready to declare the recession over.

TOURISM

Visitors continue to flock to Hilton Head Island, but while they're here they have a keen eye on their wallets and spend less, say business owners and tourism officials.

"People are coming, but they're watching their money," said Roy Prescott, owner of Remy's Bar & Grill. "They're spending a lot of it at the grocery store."

In the past year, revenue from taxes on hotel rooms decreased by about 5 percent, according to town data, while money from sales taxes on prepared food and beverages was down 10 percent.

After a slow start in June, occupancy rates at the island's hotels and resorts increased in July, but after owners cut prices.

According to the most recent statistics available, occupancy rates ticked up 4.7 percent in July compared to the same month in 2008, while the average daily price dropped 6.6 percent compared to July 2008.

"We kind of look at ourselves like the little island that could," said Charlie Clark, spokeswoman for the Hilton Head Island-Bluffton Chamber of Commerce.

The chamber routinely monitors occupancy rates in other tourist destinations that market themselves for family vacations. Officials found Hilton Head and Savannah were the only two on the list of a dozen places that posted occupancy increases in June, the most recent month available in terms of comparisons between destinations, Clark said.

To the north, Charleston saw a 5 percent decrease, while Myrtle Beach was down almost 7 percent in June, according to the Smith Travel Research report. Hilton Head was up 0.4 percent after discounting room prices by 10 percent; Savannah posted a 3 percent increase.

"People still might be playing golf, but they're playing only one round instead of three," Clark said of Hilton Head tourists. "They're possibly eating out less than before and are definitely looking for a value when it comes to their accommodations."

At Roller's Liquor and Party Store at Coligny Plaza, owner John Kelsey is breathing a little easier than he was a few months ago because business is comparable to last year.

"We like to say that people drink during good times and bad," Kelsey said. "But it's a huge relief -- coming into the summer we didn't know what to expect."

Neither did Prescott, who recently expanded Remy's into a second space at Heritage Plaza. Relaxation remains a priority for many families, he said.

But he's not sure what the fall and spring seasons will bring when the island tends to rely less on family vacations and more on conventions and golf outings.

"I don't know if we're going to hit a brick wall or just a speed bump in about three weeks," Prescott said.

Ken Nason, director of sales and marketing for the Westin Resort in Port Royal Plantation, said projections indicate occupancy rates will be strong this month and flat in September.

"We're delighted," he said. "We've seen a huge pick-up in the past three weeks."

Conventions and other group bookings continue to be slow as companies cut expenses and take longer to make decisions, say resort officials. The island's resorts hope to make up for the difference this fall by marketing deals for people living within driving distance of the island.

"For the rest of the year, the drive market is where you're going to find your success," said David Sulak, sales and marketing director for the Marriott Resort & Spa in Palmetto Dunes. "The fall for us is definitely off where we want to be, but October looks like it's going to be a good month. If we can hopefully stay flat in September and November, we'll be happy."

REAL ESTATE

When the housing bubble burst, real estate and development-related businesses like Charter One Realty began cutting expenses.

In July 2008, the commercial and residential real estate company stopped filling vacant positions. In January, two members of the administrative staff were laid off, and other support personnel had their hours cut.

But in June, the company started hiring again, and the administrative staff is working five days a week.

"It's proven that we did the right thing at the right time," said Charter One partner Charles Sampson. "Things have started selling, but they're selling at somewhat of a lower price."

The S.C. Realtors Association, which compiles data for the Hilton Head area that also includes several outlying counties, reports that home sales were down 30 percent in the first quarter of the year compared to the first quarter of 2008.

Sales, more recently, were up 2 percent in June compared to June 2008, but the average selling price decreased about 18 percent, from $340,000 to $278,000.

For a more accurate picture of the island market, Sampson points to the 14 homes sold in Hilton Head Plantation in July. Of them, only one was for more than $600,000 and all but three were for less than $500,000, Sampson said.

"When times were better, we had a greater spread of home prices," he said. "We wouldn't have had any under $300,000, and on this list there's three of them. And we probably wouldn't have many under $400,000, and there's six of those on this list."

The number of houses on the market continues to drop and more people are house-hunting than earlier in the year, but deals are taking longer to put together, said Rod Engard, broker-in-charge of Engard Real Estate.

Sellers are hesitant to sell at lower prices, while prospective homebuyers -- some of whom were "beat up" selling their old homes -- are playing hard ball to get better prices, he said.

"People are still wanting deals, but there are a lot more lookers than there have been in the past, which is good," Engard said. "I think people feel a little bit better about buying something now, but not a whole lot better."

The construction side of real estate, though, has not restarted.

Local architects and homebuilders are hurting, and not just because there's little undeveloped land left on the island, they say.

Architects say they have been hoping for new clients, but mostly have been visited by returning customers seeking to scale back their initial plans.

Mayor Tom Peeples, a builder, recently joked that times are so tough he'd be willing to take on even the smallest of jobs, such as replacing someone's front door.

Sampson, president-elect of the Hilton Head Area Association of Realtors, has lived on the island since 1972 and has seen several boom-bust cycles for Hilton Head.

Those times include the oil embargo in the 1970s, when fewer people vacationed on the island, causing Sea Pines to reduce its staff from 2,500 to about 500, he said, and the subsequent sale of golf courses and the William Hilton Inn.

In the 1980s, interest rates rose, pricing some out of the market; five of the island's major communities, including Sea Pines, were caught up in bankruptcy; and the government changed its tax rules for second homes.

"This one probably is worse because it's not just real estate and it's not just Hilton Head," Sampson said. "The bottom line is that things are better, but we're still not out of the woods."