As chair of the Sperry Van Ness® Self Storage Product Council, I am pleased to provide this quarterly report on the self storage industry. This report is intended for owners, operators, vendors who service the self storage industry, investors in this particular product sector and the over 800 Sperry Van Ness advisors serving clients in 175 markets across the country.
As most of you already know, this investment product sector is a niche industry with the real estate value dependent on the operating business component. The stronger the management, the better results one should see to the bottom line. In that regard, our industry is very similar to the hospitality industry. However, the self storage industry has not yet found a way to “flag” the facilities and create brand awareness. Its time will come.
This past year has seen a continued and healthy improvement in the sector, led by the four public REIT’s that have had seven consecutive quarters of increased occupancies and revenue after nine consecutive quarters of losses beginning in 4Q 2008. Public Storage remains the industry leader in number of facilities across the country including its European division bought from the absorption of Shurgard operations some six years ago. Public Storage is also the leader in stock price at a high value this year at $130 price per share or three times the value of the next competitor, Extra Space. Public Storage stock was included in the S&P 500 and Dow Jones Industrial Average a few years ago, replacing such household names as Sears & Roebuck. The 3Q earnings reports have just been announced and all four of the self storage REIT’s continue to perform well.
New development of the product has been at a virtual standstill these past four years, which has helped supply catch up with demand in most markets as the industry doubled in size from one billion to two billion square feet from 1995 through 2006. The dearth of new construction has created an opportunity for the larger operators to gain market share by having the capital to purchase existing facilities, especially in the top tier markets.
Cap Rates in the top tier markets are in the 6.5-7.5% range while the rest of the country is seeing 7.5-9.0% Cap Rates. The coming year should be very interesting as those facilities that were financed with 10 year debt in 2003 will be coming to the market for either refinance or sale. It remains to be seen how many of those properties have retained their value and will qualify for refinancing without a recapitalization.
The Sperry Van Ness organization has self storage specialists located across the country who can become a valued resource for you. If you are interested in the investment opportunities in this area, reach out to the SVN advisor in your market and watch for opportunities to buy and sell as they become available.
Nick Magilisi, Self Storage Council Chair, Sperry Van Ness/Commercial Realty
*All Sperry Van Ness® offices are independently owned and operated.