Investors are growing ever more interested in the prospect of self-storage, which is currently enjoying a period of successful growth. Data show that occupancy levels are at 91% across the U.S. and owners continue to raise rents in the face of increased demand. Industry analysts note that rents rose more than 4% in 2013 over last year and nothing will stop further increases in the future. As a result, more and more investors are looking to put money into self-storage, particularly in the form of real estate investment trusts that focus on the self-storage model. For more on this continue reading the following article from National Real Estate Investor.
Self-storage property owners have increased their income this year because they are enjoying the best of both worlds—lower vacancies and higher rents. In fact, increased rental rates haven't deterred customers, so owners continue to lift unit rates higher every few months to see how high they can lift the ceiling.
The industry has about 91 percent occupancy, with the rental rates averaging just more than $87 a 100-sq.-ft. ground level, non-climate-controlled unit, the asking rate matching the peak following the housing collapse in 2009. Rental income in second quarter 2013 was up about 4.1 percent from a year prior, says R. Christian Sonne, executive managing director at the company and author of the Self Storage Performance Quarterly report.
“We used to have, on average, about 1,000 new properties being built a year nationwide, this year there’s only 117,” Sonne says. “For self-storage, the two pillars of success are population growth and time, and that’s happened. With little new building and high demand, the owners can raise rents whenever they want—and they are.”
Marc Boorstein, principal of Chicago-based MJ Partners Real Estate Services, said in his recent second quarter report that the low homeownership rate, which is still down about 4 percent from a decade ago to 65.1 percent, means that there’s more people renting. Homeowners tend to move, the typical time a storage unit is needed, a lot less than renters, Boorstein said.
Boorstein said the main four public REITs: Public Storage, Extra Space Storage, CubeSmart and Sovran Self Storage Inc., saw revenues grow 5 percent to 9 percent in the second quarter. This compares sharply to the performance of all four in the second half of 2009, where revenues dropped to negative 6 percent, according to the Cushman & Wakefield report. Revenue rocketed up starting in the first half of 2010, and hasn’t dropped or plateaued since.
However, REITs still only make up a small percentage of self-storage ownership, with private owners still the majority owners of most properties. The trusts have been trying to increase market share, but there’s just not that much being offered, Sonne says. “There’s been about $2 billion in portfolio acquisitions in the past couple of years, including Storage Deluxe’ $560 million East Coast portfolio sale to CubeSmart last year. They are trying to find portfolios, but there’s just not that much out there.”
In a recent deal where trusts have succeeded, Glendale, Calif.-based Public Storage was reportedly the winning bidder last week to acquire Harrison Street Real Estate Capital’s joint-venture stake in a 43-facility portfolio owned by Matthews, N.C.-based Morningstar Properties LLC for $315 million. Private investors are still trying to jump into the self-storage sector, Sonne says, though the niche label is hard to overcome.
“We’ve seen huge interest by companies such as Prudential, Heitman, Blackstone, Starwood Capital and retirement fund firms,” he says. “Self-storage had the lowest loan loss of any other sector during and since the recession, and the highest consistent returns. We’ve also seen interest from cross-over players, by those who invest in apartments on the private equity side; the Carlyle Group, for example, is looking for the right partner to get into self-storage. With the few new properties coming online in the next 18 months, our forecast for the sector is pretty strong.”
This article was republished with permission from National Real Estate Investor.