At the beginning of April 2016, Cushman & Wakefield conducted an investor survey for the self-storage industry. The survey data was collected as part of an online questionnaire that was sent to key self-storage market participants during a two-week period. The market participants were asked to segregate their responses by investment class (A, B, and C), which is defined in the sidebar below. Furthermore, the data collected is corroborated by the experience and knowledge of the 20 Self Storage Practice Group team members at Cushman & Wakefield.
Class A • Located in a top 50 MSA • Market has high barriers to entry (through either lack of developable land or a lengthy entitlement process) • Generally newer facilities in good condition with state-of-the-art amenities, including climate-controlled units and secured facilities with gated access • Professional on-site and off-site management • Minimum size of approximately 75,000 square feet • Good location with access to attract tenants willing to pay rents in the upper percentile in the market place
Class B • Located in a top 100 MSA • Market has typical barriers to entry • Generally, facilities built since 1980 in average to good condition with amenities typical for its market, including secured facilities with gated access • Full time on-site and off-site management • Minimum size of approximately 40,000 square feet
Class C • Either located in a smaller market or in less desirable areas of a top 50 MSA • Generally, 1970s or 1980s vintage properties in average to below-average condition • Generally managed by the owner and may not have an on-site manager • May or may not have typical amenities such as gated access, security cameras, and/or climate-controlled units • May have secondary, less desirable locations with generally below average access and/or limited visibility
rates have declined. They are expected to continue to decline, although at a
slower rate. As anticipated, the spread between the three classes ranges
between approximately 50 and 100 basis points.
portfolio transaction activity has slowed due to a limited supply of product
coming to market, particularly in the Class A and B-plus product. Due to the
lack of good quality supply, interest in the acquisition of Class-B quality
portfolios has increased as investors are looking to place capital.
continues to be a significant amount of capital looking to be placed in the sector.
High returns from the self-storage REITs have attracted new market participants.
Brokers report upwards of 10-plus bids on good quality Class-A and Class-B
construction continues to be at the highest levels since 2006. According to FW
Dodge, the most active development markets include: Dallas-Fort Worth-Arlington
(25 facilities), New York-Newark-Edison (24), Miami-Fort Lauderdale-Miami Beach
(20), Atlanta-Sandy Springs-Marietta (13), Denver-Aurora (13),
Chicago-Naperville-Joliet (12), and Los Angeles-Long Beach-Santa Ana (12).
of these markets, with the exception of Denver, are in the top 10 MSAs by
population. While large, these markets do not necessarily correspond with the
high population growth rates over the next five years. The metropolitan areas
of Atlanta, Dallas/Fort Worth, Miami, and Denver are projecting high population
growth rates over the next five years, while the Los Angeles, New York, and
Chicago MSAs are expecting annual population growth rates of less than one
according to the Self-Storage Almanac,
the square footage per capita is less than 4.5 square feet per person in the
New York, Los Angeles, and Chicago markets. Therefore, it appears that self-storage
development remains controlled. Detailed information regarding the development
pipeline is included in the “Self Storage Performance Quarterly” report
produced by Cushman & Wakefield.
new facilities constructed in the top 50 MSAs were slightly larger in size than
the facilities built in secondary markets, as well as required slightly higher
direct construction costs on a per-square-foot basis. In addition to new
facilities, expansion of existing facilities was also at record highs in 2015.
at the Certificate of Occupancy (C of O) stage of development continues to be a
popular option for both developers and operators, as the risk of construction
and lease-up is divided respectively.
The success of the self-storage
REITs is benefiting the sector as a whole. Capital continues to enter the
market, thereby compressing capitalization rates and increasing values. New
market participants, as well as large operators, have started partnerships with
developers to build new storage facilities. The supply of new self-storage
facilities is expected to be at levels not seen since the mid-2000s.
Kate Spencer, MAI, is the Managing Director and Practice Group Leader of Cushman & Wakefield’s Self Storage Valuation & Advisory division. She is based in the Dallas office.