Self-Storage's Growing Appeal to Investors in the West

While industrial is taking all of the attention, the self-storage market is quietly becoming one of the top performing CRE asset classes. According to the Spring 2022 Nunez Self-Storage Report, self-storage was among the most actively traded asset classes last year. Demand for self-storage fueled strong occupancy rates north of 90% and rent growth.

Last year, the rents on a 10 x 10 non-climate controlled units increased 8.5%, and strong rent growth is predicted again this year, albeit at a slower rate. Much of the market growth was concentrated throughout the Sunbelt region, which experienced substantial inward migration during the pandemic, and the formation of new households, particularly among millennials, in 2021 helped to drive demand.

In the Phoenix and Tucson markets, where Denise Nunez, executive managing director at NAI Horizon and the author of the report is based, there are currently 29 new storage facilities under construction and 54 new projects proposed. Nunez notes that Phoenix has had the fastest-growing home price appreciation in the nation for 31 consecutive months, at 32.5%. This has underscored the activity in the market.

The strong fundamentals in the self-storage sector were of particular benefit to REITs, which experienced record stock pricing and returns. According to NAREIT as cited in the report, “self-storage stocks outperformed many of the broader market indices last year, with an eye-popping 2021 total return of 65.54%.” Since February 2020, self-storage shares in the FTSE NAREIT All Equity REITs Index have had 84% returns, including price gains and dividend payments, while the broader market generated returns at approximately 20%.

Investor appetite has also increased for self-storage product. CubeSmart plans to acquire a 59-property portfolio in Southern California, Phoenix, Las Vegas and Houston from LAACO for approximately $1.69 billion, and Public Storage announced plans to buy All Storage’s entire portfolio for $1.5 billion.

This year, new supply deliveries could slow market activity. According to Moody’s, 195,015 units came online last year, which could increased the market vacancy rate to 13%, still well below the 14.6% at the end of 2020.