CHICAGO—The self-storage industry has been consistently robust for years, with rising levels of occupancy and gains in net revenue, especially by the largest REITs, and in the second quarter this vigorous growth continued, according to a new quarterly report by MJ Partners Real Estate Services, a Chicago-based firm.
“Six months ago we thought perhaps demand was at a peak, but instead we've found that it has continued to expand,” Marc A. Boorstein, a principal of MJ Partners, tells GlobeSt.com.
MJ Partners' report focuses on the four largest REITs in the self-storage world, and what impresses Boorstein the most about the current state of the sector is that officials from the big four are unanimous in their optimism. “They are not hedging anymore; everyone is at record occupancy and that even includes the smaller private owners who, even though most have less sophisticated operations than the REITs, have still benefitted from the expansion.”
The big four all saw significant jumps in occupancy in the second quarter. Just a few years ago these operators usually had occupancy rates of about 85%, but Public Storage, which has 2,262 sites in the US and more than 200 in Europe, just saw its occupancy rate hit 95.4%, up from 94.7% last year. Extra Space Storage, with 1,147 sites the second largest, had a rate of 94.5%, compared to 92.1% last year. And revenue among the big four grew from 5.8% to 9.4% when compared to the second quarter of 2014.
One big change from just a few years ago is that new facilities now get leased up much quicker. “Some have been leased up in under a year,” Boorstein says, “and we've never seen that in the history of the industry.”
An increasing number of investors want to get in on the action, especially since new development does not come close to matching the demand.
“The top 50 US metropolitan markets need about $25 billion, an estimated 3,450 new self storage facilities, in new self storage development to meet population growth and expected consumer demand during the next five years,” says Dean Jernigan, chief executive officer of Jernigan Capital, Inc., a Miami-based REIT that offers financing for ground-up construction of self storage facilities or major redevelopment opportunities, as well as for acquisitions.
But as of end of May 2015, the pipeline of new supply, according to F.W. Dodge, totals just 365 outlets nationwide in various stages of new construction, including alterations, renovations, and additions.
Implied cap rates for the four largest self-storage REITs have sunk to historic lows, MJ Partners found. In the second quarter, the rate for Public Storage hit 3.9%; Extra Space Storage also reached 3.9%; CubeSmart was at 4.2%; and the rate for Sovran Self-Storage was 5.3%.
“We didn't even see this level of demand before the recession,” Boorstein says. “I have never seen anything like it in 25 years.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
