IRVINE, CA—While mom-and-pop owners dominate the self-storage market, an increasing number of REITs are beginning to invest in it. Roberto Munoz, a senior associate with Marcus & Millichap who specializes in self-storage properties, tells GlobeSt.com that the sector is doing so well that REITs are clamoring for a piece of the pie.
“The majority of owners would be mom-and-pops, but the REITs are gaining a bigger footprint in some markets,” says Munoz. “The ownership spectrum ranges from one facility to four properties to the REITs, which own a large number.”
As GlobeSt.com reported last week, vacancy in Orange County’s self-storage sector is expected to decrease by 40 bps this year, down to 12.7% by year’s end, according to Marcus & Millichap. Projected to be slightly above the national average of 12.6%, the vacancy reflects increased demand for self-storage units in the county that stems from gains in employment and population, according to the firm.
Munoz adds that industrial and office REITs are considering self-storage because the returns are higher than in some of these properties, there’s little maintenance to owning self-storage facilities and lenders that weren’t considering self-storage financing in the past are now considering it. “The market is getting aggressive because returns are in the 6-caps, which we saw back in ’06/’07. There’s not much inventory out there, and the REITs and investors are getting aggressive on these purchases. Investors are coming out, and pricing is getting competitive.”
Both climate-controlled and non-climate-controlled self-storage properties are in demand, but this becomes much more of an issue in desert markets than in coastal ones, Munoz adds. However, newly built self-storage facilities across the board are offering climate control, as well as modern design features such as more windows in the front of the building.
Munoz says he’s also seeing growth in occupancy and increased rental rates as this sector strengthens.