Marcus & Millichap Report Self-Storage Industry’s Rising Demand and Construction
September 26, 2018 | James Sprow | Blue Vault
The recent report published by Marcus & Millichap describes the U.S. self-storage industry as buoyed on the demand side by rising employment, younger persons moving into apartments with limited floorspace, and downsizing older individuals needing external storage. On the supply side, developers are bringing a record amount of storage to market in 2018. This increased supply will create pockets of oversupply risk in multiple metros, putting upward pressure on vacancy rates.
Investor competition for self-storage properties has driven price growth, increasing the average price per square foot 11 percent over the 12-month period ending in June to $108 per square foot. According to the report, the combination of higher prices and lower prospective first-year returns has created a gap between buyer and seller expectations.
The report offers the following key factors influencing the self-storage market:
• Employment in the U.S. will increase by 2.3 million jobs in 2018, expanding the national workforce by 1.6% after a 1.5% increase in 2017.
• A record amount of storage space will be delivered in 2018, with a slowdown in 2019 as higher construction costs impact projects currently being planned.
• Supply will outpace demand in 2018, applying upward pressure on vacancies in many metros across the U.S. The 40 basis point increase in vacancy will raise the national rate to 10 percent in 2018, still below the average for this economic cycle.
• Market rents are expected to increase 0.8 percent to $1.21 per square foot this year, after a 1.7 percent rise in 2017. New construction is restraining rent growth in many metros.
Blue Vault covers three nontraded REITs that are focused on self-storage. SmartStop sponsors Strategic Storage Growth Trust, Strategic Storage Trust II, and Strategic Storage Trust IV. The latter nontraded REIT is currently offering shares in its initial public offering, with three share classes. The current distribution yields based upon the offering prices for Class A, Class T, and Class W shares are 6.25%, 5.45%, and 6.37%, respectively, after shareholder servicing fees and based upon the most recent offering prices.
SmartStop Self Storage, Inc., merged with ExtraSpace (“EXR”) in 2015 with an estimated full-cycle value of $13.75 per share for shares that originally were sold at $10.00 per share.
For the full report, see:
Source: Marcus & Millichap
