Too many cooks in Charleston’s kitchen? Surging culinary scene stirs debate about a bubble that could burst

The buzz that surrounds HUSK restaurant is a magnet for visitors on Queen Street on Jan. 18.

The Charleston restaurant scene has been written up in every glossy food magazine and major metropolitan newspaper, yet the publication that may matter most to the local hospitality industry is an electronic newsletter with just a few hundred addresses on its distribution list.

Thomas Kennedy’s quarterly Charleston Restaurant Report consists primarily of hyperlinked stories about national menu trends and advertisements for vendors selling bulk produce and glassware. The heart of the report, though, is a bulleted list of openings, closings and restaurants in the works. Within hours of issuing a new edition, Kennedy is apt to receive 20 emails from readers wanting to know more about a raw bar or taco shop heralded in the “Coming Soon” section. As the tri-county area gains one new restaurant each week, on average, it’s nearly impossible for even insiders to keep up.

“You know I’m not getting all of them,” says Kennedy, a longtime restaurant real estate broker and principal of Kennedy Partners.

When Kennedy in 2008 compiled his first newsletter, using data drawn from public records and word of mouth, “it was nothing more than a Word document with different fonts and colors to put more spice in it.” But by 2011, with the number of annual openings creeping toward 100, it didn’t take a Comic Sans typeface to attract the community’s attention.

“People who’ve been in the restaurant business forever were saying, ‘Is this sustainable? No way. This is crazy,’ ” Kennedy says. “And here we are, four years later, and we’re still in an uptick.”

Charleston in 2013 was home to 1,379 food and drink establishments, representing a 28 percent increase since 2001, according to the U.S. Bureau of Labor Statistics. While 2014 data isn’t yet available, it’s likely to reflect continued growth. “We’ve never had this much activity in 18 months ever,” Tim Hagar, also a restaurant real estate broker, says of the period since mid-2013.

Kennedy in 2014 charted the openings of 90 new restaurants, a surge that has contributed to talk of a “restaurant bubble.” Many observers including restaurant employees and new residents, who have financial and personal stakes in the industry’s continued success, fear the frenzied pace of openings and doting national media coverage can’t possibly last.

Yet economists, historians and tourism scholars are notably less concerned. Barring a major disaster, they say, the Charleston area’s exuberant culinary growth is unlikely to peter out.

Part of the difficulty of assessing the bubbliness of the area’s restaurant sector is that the whole concept is fairly nebulous. “I don’t think the word has an entirely coherent definition,” says Tyler Cowen, professor of economics at George Mason University and author of “An Economist Gets Lunch.” “Someone once said, ‘A bubble is a market price I don’t agree with.’ ”

Additionally, bubbles pose a kind of liar’s paradox problem: “During a bubble, there’s a lot of denial,” says Carmen Reinhart, an international finance professor at Harvard Kennedy School. So when restaurateurs confidently dismiss the notion of a bubble, it could mean that there isn’t a bubble — or that they’re deeply entrenched in it.

The classic example of a bubble is tulipmania, which seized Holland in the early 1600s. Demand for tulips promoted by professional bulb traders escalated far faster than supply, driving up the flowers’ price so extravagantly that farmers and weavers quit their jobs to trade tulips. In 1633, a house sold for three bulbs. But the market crashed in 1637, with tulips losing 99 percent of their value over a few sobering weeks.

More recent bubbles culminated in the dotcom crash of the late 1990s and the subprime mortgage crisis that unfolded after housing prices peaked in 2006.

“The concern is sharp increases within a relatively short time frame,” Reinhart says. “It’s not that changes don’t occur, but the issue is you can get carried away. I’m sorry to be so negative, but it’s unreal to say otherwise.”

Reinhart emphasizes that growth isn’t necessarily synonymous with bubbledom: If an area’s population increases or becomes wealthier, it’s reasonable to expect more restaurants to open. The population of Charleston County grew by 6.5 percent between 2010 and 2013, adding 22,595 people, according to U.S. Census Bureau data. Restaurants are just one of the more noticeable ways the area is accommodating new residents.

The local phenomenon also is in line with national statistics. Forty states in 2013 ended the year with more restaurants than were operating the year before. Although a higher number of states reported restaurant gains in 2011 and 2012, the overall count has steadily increased since 2001.

In that time, Atlanta has increased its restaurant tally by 36 percent. That figure was more than doubled by Nashville, which recorded a 75 percent jump, and Greenville, which had a 57 percent increase.

At base, Reinhart says, bubbles are nonsensical. There’s no objectively good reason for squandering a fortune on a tulip bulb or uninhabitable swampland, which was the object of a 1920s real estate bubble that doomed South Florida to a decades-long slump. “Bubbles are generally things you can’t explain,” she says.

In Charleston, though, there is no shortage of explanations for a restaurant boom. In addition to the population influx stimulated by the arrival of Boeing and being named Conde Nast’s “Readers Choice No. 1 Top U.S. City” four years running, the city’s dining scene has benefited from developments as disparate as the 2005 law ending the minibottle era and JetBlue’s pricing strategy.

Robert Boland, chairman of the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management at New York University, suggests Hurricane Katrina also was a factor in Charleston’s recent gastronomic success, since diners accustomed to eating grandly in New Orleans were forced to find upscale restaurants elsewhere. (Officially, that’s considered a shift in comparative advantage, and it’s one of the legitimate reasons for expansion.)

Hagar, the real estate broker, says, “I don’t know how you put together a model that takes all of these crazy variables into consideration.”

Modeling the contours of a bubble is somewhat more straightforward. Economists are very, very cautious about declaring real bubbles, but political economist Robert Wright, who wrote “Fubarnomics: A Lighthearted, Serious Look at America’s Economic Ills,” suggests there are three hallmarks of a restaurant industry in the throes of financial conditions resembling a bubble:

To start, bubbles are typically highly leveraged. “The more people are borrowing above what is customary, the more likely a bubble is inflating,” Wright says. Banks’ willingness to hand out money to home buyers in the aughts was ultimately devastating to the national economy, for example. But the local restaurant industry is largely shielded from the long-term problems created by foolish loans because few banks are willing to fuss with the food-and-beverage industry in the first place.

“It’s very difficult to provide financing for a startup restaurant,” says Bill Medich, regional president of South State Bank. “Until you open in Charleston, you don’t know what’s going to happen. What we encourage restaurants to do is finance through their friends and family.”

There are exceptions to the financing rule: Mike Lata appears in ads for South State Bank. “After a number of years of success at FIG, we’d gotten comfortable with Mike and (co-owner) Adam (Nemirow),” Medich says. The vast majority of Charleston restaurants, though, are self-funded.

“A lot of these restaurants are trophies,” Hagar says, alluding to the tremendous personal wealth represented along upper King. For instance, Anita Zucker, one of the 300 wealthiest women in the U.S., is preparing to open 492 next month.

Downtown rents vary, but Hagar estimates most desirable spaces rent for at least $120,000 a year. And according to restaurant consultants, rent should account for just 8 percent of ongoing expenses: It’s dwarfed by the cost of food and staffing.

“You’re seeing a lot of folks come into town with an idea and $100,000 and think they’re going to kill it in Charleston,” Kennedy says. “My first duty is to educate them.”

The high cost of opening a restaurant in Charleston is related to Wright’s second bubbledom consideration: Speculation. “Are people buying with an eye to short-term sale?” he asks. According to Kennedy and Hagar, that’s an extremely unusual scenario: It’s far more common for restaurateurs to pour money into a project, assuming it will succeed. When those restaurants can’t generate enough business to stay open, the market gains another space already equipped with the exhaust hood, plumbing and other expensive accoutrements that would-be restaurateurs require.

Finally, Wright says, a restaurant scene’s sustainability can be gauged through occupancy. If customers are filling the seats, there’s no immediate cause for concern.

“I’ve often had people ask me if the surge of restaurants on King has had an adverse effect on East Bay restaurants,” says Dick Elliott, president and founder of Maverick Southern Kitchens, which includes Slightly North of Broad and High Cotton. “I’ll be candid to say it never occurred to us, because we never saw even a blip. We had a record year in 2014, the last year and the year before that. The second half of 2014 was just gangbusters.”

Increasingly, new restaurants are popping up in areas such as Summerville or West Ashley, which lacked the pizzerias, coffee shops, burger joints and wine bars that are now deemed essential for a comfortable Lowcountry lifestyle. The infill approach has helped stabilize growth, so that the net number of new restaurants has barely budged since 2011, when openings and closings left the area with 50 more restaurants. The net gain was 45 restaurants in 2012; 49 restaurants in 2013 and 47 restaurants in 2014.

Restaurants serving locals are slightly less vulnerable to an economic downturn than tourist restaurants, which Elliott worries many downtown restaurants are becoming by default. “The character of restaurants on the peninsula will change if people can’t park,” he says. Today, about three-quarters of Maverick Southern Kitchens’ guests are visitors.

But history suggests the culinary tourism economy is likely to remain robust, since there is no domestic example of a city becoming known for its kitchen splendors and then slipping off the radar. New York, San Francisco and New Orleans are the most prominent examples of cities that have hung onto their restaurant status for more than a century, but dining reputations are remarkably consistent. With the exception of resorts built around needs that dissipated with the advent of air-conditioning and antibiotics, culinary capitals don’t just disappear.

“If a city develops a reputation for cuisine that is not linked to a single season of a year, or a particular pastime, such as racing, golfing or beach-going, it tends to retain that reputation in perpetuity,” says University of South Carolina professor David Shields, who has made an exhaustive study of 19th-century dining culture in the South.

Elliott, who’s running for mayor, also thinks history is on Charleston’s side: “We’re functioning from a pretty solid base of history and historical architecture, and those things are not going away. I think the quality of restaurants is within our capability to maintain.”

That doesn’t mean there aren’t potential threats to Charleston’s current dining supremacy. While the city’s restaurants weathered the last recession fairly well, the presence of international companies such as Boeing means the city is gradually becoming more sensitive to global shifts. The ongoing staffing shortage could also hobble growth in the hospitality sector. And Boland, the tourism professor, suspects a hurricane “would be absolutely devastating.”

Still, he says, “I don’t see the dining scene being in any danger. As long as you’re playing to arrivals, you’re going to be fine.”