SEATTLE–With demand driven by consumer and business interest alike, the national self-storage market is set for a strong 2019. That’s the outlook as provided by Marcus & Millichap’s 2019 US Self-Storage Investment Forecast and by Joel Deis, VP and national director of the group.
“Private businesses are a major source of self-storage demand,” the report states, “and more companies are likely to make use of such facilities this year. The economy supports business expansion, and self-storage offers a cost-effective option compared with office and retail rents.”
The report puts the percentage of businesses in a “typical” self-storage facility at 19. But it’s millennials who provide the largest base of interest, at 28% of typical non-commercial occupancy.
And yes, while constantly on-the-go millennials make up a large portion of the consumer side of the demand, don’t count out their parents, says Deis, “empty-nesters who are moving back into the city core.” And looking to shed–or at least put into a shed–some of their accumulation.
That said, the new construction is taking a bit of a pause now, Deis explains. “Development is constrained,” he says, “slowing down as we get through this phase of absorption.” While still strong, the report states that completions will soften a bit this year, and “markets most impacted by new supply include Seattle-Tacoma, Denver, Nashville and Charlotte, where asking rents will face increased pressure as new arrivals lease up.”
Slowdowns aside, Deis states that the much-publicized woes of the retail sector offer opportunities for certain self-storage developers. “There are a handful of developers in the US that specialize in conversions,” he says. “They’ll take the space formerly occupied by a big-box retailer, where, typically, there’s already built in demand and the right demographics.” The report states that last year, U-Haul picked up 25 vacant Sears and Kmart stores around the nation to work exactly that type of adaptive re-use.
“Constrained” construction hasn’t constrained investors, Deis says, and new players are coming into the market, including foreign capital and institutions looking to diversify their portfolio in a product type that a few years ago, wasn’t a blip on their radar. Relative to markets such as multifamily, “They’re attracted to the better yields and the less capital-intensive nature of the sector,” he says.
The report bears this out: “A new cadre of buyers are entering self-storage from other commercial property types for the limited management needs and positive yield arbitrage. Private apartment investors in particular have been attracted to self-storage assets because the yields are often 50 to 100 basis points higher and they tend to be less management intensive.”
In all Deis is looking at a favorable 2019. “Absolutely,” he concludes. “While it’s always market-by-market, on a national basis, we’re looking at a lot of liquidity, a healthy debt environment and markets where there’s enough demand to absorb new construction.”