Self-Storage Deals Hit All-Time High
Many investors see self-storage as an opportunity for diversification.
Despite disruptions caused by the pandemic, self-storage transactions hit an all-time high in 2020.
Overall, self-storage sales tallied $7.7 billion in 2020, which was one-third higher than that of 2019, according to Real Capital Analytics.
However, two entity transactions in Q4, BREIT’s acquisition of Simply Self Storage and Nexpoint’s acquisition of Jernigan Capital, accounted for over 25% of annual volume.
Still, single-asset sales, which RCA says is a better indicator of the health of the market, also rose 13% year-over-year to $3.5 billion.
While the number of unique investors fell in Q2 2020, it rose to an all-time high of 125 by the end of the year. Private investors claimed 58% of investment in 2020.
Not surprisingly, BREIT and Nexpoint were the top two buyers in 2020. They were followed by Public Storage, National Storage Affiliates, CubeSmart, Extra Space Storage, LifeStorage REIT, Merit Hill Capital, SROA Capital LLC and Inland RE Group, according to RCA. Public Storage was the only top 10 investor and developer in 2020.
While sales rose, new development tapered off. RCA says the value of construction fell 20% from 2019.
Self-storage cap rates were at 6.1% in 2020, putting them at or below their long-term averages across all geographies. Cap rates in the six major metros rose 10 basis points from the levels seen in 2019.
Overall, cap rates fell 20 basis points to hit 6.0% at year-end for the industrial sector, according to RCA.
“This difference in cap rate trends is not meant to suggest waning interest in the sector; again, sales were up, in addition to the number of unique buyers,” according to RCA. “But with slowing cap rate compression, it is helpful that the pace of construction pulled back in 2020.”
Self-storage is off to a strong start in 2020, with $968 million in investment activity through February 2021. That is the highest number that RCA has recorded for the first two months of a year.
Many of these buyers see self-storage as a diversification opportunity. “As wealth advisors, sometimes we recommend going out of multifamily investments and finding value in something like a net-lease or self-storage transaction,” Robert Johnston of Levin Johnston at Marcus & Millichap told GlobeSt.com in an earlier interview. “These product types can often yield the types of returns our clients are seeking because some of these types are not as well-known and there is less competition driving up prices.”