“The surge in construction of self-storage facilities across the country has been one of the biggest growth areas in the commercial real estate market” over the past year, says Chris Roach at BBG.
Still regarded as a niche category despite the double-digit annual increases in funds from operations by some of its leading REITs, self-storage enjoyed a banner year in 2017 and is poised for more of the same in 2018. A metric that’s both a measure of the sector’s strength and cause for concern in some markets is construction, which reached a new high in the first eight months of ’17.
Citing Census Bureau data, Inside Self-Storage magazine recently reported that more than $2.27 billion was spent on new construction of self-storage facilities nationwide through August 31, the highest amount on record. That eight-month tally was more than the $1.9 billion spent in all of 2016, representing an annual increase of nearly 90%.
Nationally, approximately 900 facilities were built last year. That’s half again as many as the 600 projects that were delivered the year prior.
“The surge in construction of self-storage facilities across the country has been one of the biggest growth areas in the commercial real estate market in ‘17,” says Chris Roach, CEO of valuation advisory firm BBG. “We anticipate that this sector will continue to show solid growth this year amid an increasing trend of more people storing items in these facilities and for longer durations.”
BBG’s hometown of Dallas leads the way in construction, with CBRE recently projecting that the metro area would see a total of 49 projects and 9.02 million square feet set delivered in ‘17. That pace of construction has led to the specter of overbuilding, CBRE reported this past October: the metro went from 1.57 square feet/person oversupplied to 2.81 square feet/person oversupplied. It’s also ranked third among metro areas in terms of new construction as a percentage of total supply.
Nationally, though, CBRE sees self-storage supply and demand metrics as generally in equilibrium. Brokerage firm Argus Self-Storage Advisors says that the two-year period from ’17 to ‘18 will see the delivery of meaningful new supply in almost every major market. “This will undoubtedly influence the submarket fundamentals where these new properties are being developed,” Ben Vestal, president of the Aurora, CO-based brokerage firm, wrote recently.
It’s no surprise, Vestal added, that the markets seeing the largest amount of new development are those that have enjoyed “tremendous population and job growth” over the past two to four years. Along with Dallas, markets such as Denver, Austin, Portland, Atlanta, San Jose, Tampa and Orlando “are all seeing a tremendous amount of new product being developed,” wrote Vestal.
BBG notes that the boom in self-storage development can be attributed to a growing trend of storing household items in these facilities rather than cluttering up their garages or basements. Additionally, the widespread devastation caused by the back-to-back hurricanes Harvey and Irma last summer has also helped spur self-storage construction, as consumers felt their valuables would be less prone to weather-related damage in these facilities.
The firm also cites new designs and other features, such as climate-controlled units and locations near shopping areas and multifamily neighborhoods, that are making self-storage facilities more appealing to consumers. There’s also a trend toward storage facilities for high-end items, such as luxury cars and expensive wines. Some of these high-end facilities offer automated retrieval systems, in which robots locate renters’ vaults and deliver their belongings to a private room at the facility.
Vestal used the phrase “cautiously optimistic” to describe the sector’s outlook for this year. “As the US economy continues to accelerate slightly and new self-storage supply continues to come on line, the self-storage sector should hold strong,” he wrote.
By: Paul Bubny (GlobeSt)
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