Conversely, Marcus & Millichap notes that “intense investor demand” has put downward pressure on first-year yields, particularly in the blue-chip coastal markets. Yet the forecast says that cap rates may begin to flatten, “as escalating values thin the buyer pool.”

Another capital markets trend is the “significant volume of pre-recession originated debt” coming due over the next couple of years, spurring property owners to consider their financing and capitalization plans. This could lead to additional assets reaching the market, according to the report.

“Consistent economic growth and strengthening property operations continue to encourage investment in self-storage properties and intensify competition among debt providers to supply acquisition financing,” the report states. “Self-storage assets in primary metros still receive funding and leverage of up to 65-70%, though loan terms and leverage can vary in secondary and tertiary metros. Investors seeking 10-year funding continue to tap CMBS lenders, where all-in rates typically start in the 5% range.”

However, Marcus & Millichap points out that spreads have widened recently, “as mortgage bond investors and subordinate bond buyers, specifically, demand higher yields. Upward pressure on CMBS spreads may persist in the coming months as investors and ratings agencies continue to reassess credit risks in light of activity in lower-rated corporate bonds issued by energy-sector companies.”

CALABASAS, CA—Among the few commercial property sectors actually benefitting from the economic turbulence of the past couple of years, self-storage has been gliding along anyway on the tailwinds of broader macroeconomic trends. “Rising retail spending coupled with lower homeownership rates indicate a solid base of renters whose mobility and downsizing households will provide momentum for the self-storage sector this year,” according to Marcus & Millichap's latest National Self-Storage Investment Forecast.

The sector's fundamentals reflect this momentum. The report predicts a 40-basis point drop in vacancies to 10.8% by the end of this year, while asking rents for both climate controlled and non-climate controlled units are expected to increase by 4.3% this year to reach a five-year high. As a further marker of the sector's strength, Marcus & Millichap notes that public self-storage REITs have outperformed most other investment funds, with “consistent returns and steady stock appreciation” as evidence.

“The self-storage expansion cycle will likely persist through 2016 as steady job growth supports unit-demand,” according to Marcus & Millichap. However, in an introductory letter to the forecast, Richard Bird, national director of the company's self-storage group, and first VP of research services John Chang issue a caveat: “The sector has also benefited from limited construction, but leading indicators point to additional development in the coming year. The favorable supply/demand balance tightened vacancy rates last year, and current forecasts point to a continuation of that trend, although the pace of contraction could ease.”

Notwithstanding the Federal Reserve's move at the end of 2015 to begin normalizing interest rates, the report notes that the continued historically low rates have equipped self-storage investors with “considerable purchasing power and positive leverage, supporting a steady rise in valuations. Despite substantial buyer interest, the limited volume of available assets has impeded deal flow,” though.

Conversely, Marcus & Millichap notes that “intense investor demand” has put downward pressure on first-year yields, particularly in the blue-chip coastal markets. Yet the forecast says that cap rates may begin to flatten, “as escalating values thin the buyer pool.”

Another capital markets trend is the “significant volume of pre-recession originated debt” coming due over the next couple of years, spurring property owners to consider their financing and capitalization plans. This could lead to additional assets reaching the market, according to the report.

“Consistent economic growth and strengthening property operations continue to encourage investment in self-storage properties and intensify competition among debt providers to supply acquisition financing,” the report states. “Self-storage assets in primary metros still receive funding and leverage of up to 65-70%, though loan terms and leverage can vary in secondary and tertiary metros. Investors seeking 10-year funding continue to tap CMBS lenders, where all-in rates typically start in the 5% range.”

However, Marcus & Millichap points out that spreads have widened recently, “as mortgage bond investors and subordinate bond buyers, specifically, demand higher yields. Upward pressure on CMBS spreads may persist in the coming months as investors and ratings agencies continue to reassess credit risks in light of activity in lower-rated corporate bonds issued by energy-sector companies.”