CHICAGO—The nation's largest self-storage REITs continue to rack up impressive gains in revenue and implied cap rates for these properties have sunk to historic lows, according to the latest overview of the industry just published by MJ Partners, a Chicago-based firm.
Public Storage, for example, by far the largest owner in the US with about 2,234 properties, now has an implied cap rate of 4.0%. And Extra Space Storage, which has 1,083 sites, has an implied cap rate of 4.5%. The other two big players, CubeSmart and Sovran, have implied cap rates of 5.2% and 5.7%, respectively.
“We see no headwinds until development starts to pick up,” Marc A. Boorstein, a principal of MJ Partners, tells GlobeSt.com.
And revenue for the third quarter among the big four increased from 5.5% to 7.7% over the same period last year, and net operating income increased from 7.3% to 10.8%. Occupancy levels seem to have topped out, however. Once again, Public Storage had the highest occupancy rate at 94.7%, the same as last quarter. The other three experienced slight declines or increases, but all stayed over 90%. But a few years ago, Boorstein says, the big REITs considered 85% the top occupancy rate, but customers kept coming in “and they are now above 90%; we've never seen that before.”
In the past year, one of the notable features about the self-storage sector was that even with all this revenue, new product remained remarkably scarce. According to Boorstein, the development process remains time-consuming and lenders have not gotten completely comfortable with self-storage because each new property starts out with zero occupancy. However, he adds that now the principal players, especially Public Storage, are starting to launch new development.
Public Storage, for example, now has $342 million development pipeline, according to MJ Partners. And in perhaps an even bigger illustration of its confidence, the REIT has begun acquiring self-storage sites with zero occupancy and trusting its ability to get them leased up, Boorstein says. That confidence seems to stem from the improved management techniques put in place by the major REITs, which have allowed them to increase rental rates and revenue without losing customers.
“You can't argue with the results anymore,” says Boorstein. “The cap rates are at all-time lows and share prices are at all-time highs.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
