Inside Self-Storage

SEP 2018

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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Page 19 of 63

J ust five years ago, self-storage development was at a standstill. Few projects were greenlit as the country recovered from The Great Recession. Then something happened. Banks began to lend again. Developers dusted off aging blueprints, and soon a new era of construction began. While it started as a trickle, it soon became a boom. As the industry enters its third year of heavy development, it's standing at a crossroads. The road signs are clear. One leads to overbuilt markets in which new projects and established operators suffer a crash in occupancy and rental rates. The other is a controlled growth led by smart owners and developers who seek markets where demand still outweighs supply. Great Growth It's an excellent time to be in the storage business. Scores of new investors are entering the industry while existing owners are expanding their sites and portfolios. In addition, many operators are experiencing higher occupancy and steadily increasing their rates. "Nationwide, self-storage continues to do well as an industry. We expect to see revenue growth in the 2 percent to 4 percent range nationwide over the next few years," says Ben Vestal, president of the Argus Self Storage Sales Network, a national group of real estate brokers. "The demand for the product remains strong and growing in many markets." When an industry is humming along, everyone takes notice—and often wants a piece of the pie. Positive vibes combined with low building over several years has led to an upsurge. "The Experts discuss industry growth and the dangers of saturated markets By Amy Campbell Building Responsibly self-storage industry is in the midst of an unprecedented development cycle," says Anne Hawkins, executive vice president of STR Sector Analysis LLC, a data and analytics specialist that tracks self-storage development in 56 of the nation's largest Metropolitan Statistical Areas (MSAs). Not only did construction spending jump 108 percent in 2017, it experienced a whopping 317 percent growth over 2015 levels, STR reports. This year's early figures show continued momentum. According to Hawkins, numbers from the U.S. Census Bureau for April showed self-storage construction spending of $475 million, a 7 percent increase over March and a 21 percent increase over February. Year-over-year, it increased by 80.6 percent, from $263 million in April 2017. In May, STR projected there'll be 68.5 million net rentable square feet of new self-storage supply to come online by April 2019, an increase of 7.4 percent. This is based on projects already under construction, existing sites that are expanding and those in the final planning phase. Market Watch After tracking development over the past four years, Argus sees that most new projects are in the top 50 MSAs, with very few in secondary markets. "Taking it one step further, most of the new or proposed developments have been clustered in their respective markets. This is has led to many new developers to the industry and seasoned industry professionals feeling that the overall market is getting overbuilt," Vestal says. "However, the concerns of overbuilding on a national scale are meaningfully overstated, and only certain submarkets and clusters within the top 50 MSAs are going to feel the real pain of overbuilding." There are major markets that are already feeling the squeeze. They include cities like Denver, Miami and Nashville, Tenn. However, beyond the sprawling metropolises, it can be difficult to pinpoint regions that are already oversaturated or nearing it. "Because self-storage is a submarket and, often times, a micro-market business, it's challenging to talk about overbuilding at a national or even MSA level. That said, it is becoming increasingly difficult to identify successful development sites in most of the top MSAs," says Jonathan Perry, executive vice president and chief investment officer for Jernigan Capital Inc., a merchant bank and advisory firm serving the self-storage industry. It's an excellent time to be in the storage business. Scores of new investors are entering the industry while existing owners are expanding their sites and portfolios. 18 ISS I September 2018

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