Self-storage investment in secondary markets on the West Coast will continue to thrive in 2019, with plenty of capital chasing deals—but some markets may be hitting their peak. Las Vegas and the Inland Empire will be the most active secondary markets, but Phoenix—which has been a hot market for self-storage investment—could be starting to cool off.
“I believe all three of these markets will be very, very active in 2019. There is a plethora of capital chasing deals and these are geographies that are still of interest from an investors' perspective,” Charles Byerly, president and CEO of US Storage Centers, tells GlobeSt.com. “With that said, as over-supply plays out in Phoenix and rates decreasing in many Phoenix markets, it will be important for developers and acquirers to do their homework on the markets and understand where supply is imminent. That will put pressure on existing assets across the greater Phoenix market.
Las Vegas is Byerly's top choice for investment in 2019, but he says that the Inland Empire will also be a strong market, especially considering that there is limited supply. “Las Vegas is one of the few markets where rents have held up and are still growing. As I mentioned above, Las Vegas has historically been a late-cycle market, so it isn't a surprise it is one of the last few markets to remain strong,” says Byerly. “The Inland Empire will remain fairly strong from an investors' appetite perspective as long as supply doesn't get out of control. Right now, it appears to be “right-sized,” which should keep cap rates low and the value of existing assets strong.
However, the Inland Empire still has challenges, particularly its size. “The biggest variable in the Inland Empire is to understand which submarkets appear to have long-term growth attributes versus the submarkets that are more likely to remain stagnate or go backward economically,” adds Byerly.
Despite some of the challenges in these markets, US Storage Centers is looking for opportunities in all of these markets and hopes to grow its portfolio in the year ahead. It is also actively looking for land sites for new developments in these markets. “We continue to monitor all of these markets as we currently have existing assets in all three markets,” says Byerly. “As opportunities present themselves, we will take a run at the ones that fit our investment criteria. Our hope is to grow in all the current markets we are in, but the 'market' will decide how successful we are in deploying capital in these areas as well as others. We continue to be a buyer of land to build self-storage assets and add existing self-storage assets to our portfolio. However, we do feel there is so much capital chasing so few deals that we are not going to be emotional about any one opportunity and thus overpay for it.”
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Kelsi Maree Borland
