HOUSTON—The recovery of the oil, gas and energy sectors, coupled with robust professional and business services-related hiring drove an encouraging rate of job growth in 2017, as employers bolstered payrolls by 45,500 workers. Amid low-4% unemployment and higher-paying organizations, firms will expand at a faster pace in 2018, driving the creation of 75,000 positions, according to the latest self-storage report by Marcus & Millichap. Houston's employment base will expand by 2.5% in 2018, double the national rate. In 2017, a 1.5% gain was registered.

An increasing number of job openings will also attract more young professionals in 2018, bolstering the metro's millennial population by more than 24,000 individuals, the largest influx of any primary market, GlobeSt.com learns. Influenced by strong income growth, household formations should also rise, totaling 53,000 by year end. After advancing by 1.7% in 2017, the metro's population will rise by 1.9% this year, representing an increase of 130,500 residents.

This robust net migration occurs following the delivery of 41,400 apartments during the past two years. These factors support a 6.4% spike in retail spending, the report indicates.

The influx of residents prompts a second year of elevated construction with developers finalizing 2.6 million square feet of space, the third highest total nationally. Completions are concentrated in East Houston and areas surrounding the Sam Houston Parkway.

A wave of new supply increases Houston's vacancy rate by triple digits for a third consecutive year with availability reaching 12.7% in 2018. A 160-basis-point increase in vacancy requires more operators to lower rents, driving down the metro's average rent by nearly 5%. This increase is comparable to last year's 180-basis-point escalation.

The metro's average rent declines for a second straight year, falling 4.8% to 86 cents per square foot in 2018. Last year, rent dropped 7%.

This increasing activity is fostering greater investor interest in Houston's self-storage inventory, specifically mentioned by one of the parties after the close of a recent acquisition. Passco Companies, in joint-venture partnership with Patriot Self Storage Management, acquired a self-storage property totaling more than 54,000 square feet.

The purchase is comprised of a facility in the River Oaks residential community at 4217 San Felipe St. with 54,294 square feet of rentable space and 1,000 square feet of wine storage, a rare find in the region. Passco Companies and Patriot Self Storage Management plan to rebrand the properties to Patriot Self Storage.

“Houston has continued to experience strong population gains, quality demographics and year-over-year job growth,” says Scott Allen, president of Passco Companies Development. “This purchase offered the opportunity to acquire a high performing self-storage asset in a market that is primed for strong economic growth.”

In fact, the Houston metro posted the second largest population gain of any US metro area in 2016 and was named the third best city for future job growth by Forbes in 2017.

“Houston has an exceptionally diverse and growing local economy, which will continue to drive demand for these properties over the next several years,” explains Allen. “There is a high concentration of Fortune 500 companies and a wide range of industries including health services, education, hospitality, oil and gas, and government, among others. The region is also home to Houston Medical Center, one of the top medical destinations in the world, which employs more than 106,000 people.”

According to Hal Perdew, president of Patriot Self Storage Management, the self-storage facility will benefit from these demand drivers.

“As the migration of companies and residents to the Houston region continues, the demand for self-storage facilities will expand as well,” says Perdew. “This adds to the long-term value of our assets, and strategically positions them to perform over time. Beyond the fundamentals, these properties are especially well-positioned to meet the needs of the affluent Houston community.”

Aaron Swerdlin at NKF Capital Markets represented buyers Passco and Patriot Self Storage Management, and also represented the seller, a partnership between Clarion Partners and Private Mini Storage.