Self-Storage Investment Market Heating Up

Property prices are rising as investor demand increases for the 5x5, 10x10 and 10x20 units, now often being built next to existing or new urban multifamily and residential developments.

"We anticipate investors will push prices higher in the Southeast in 2004, as the region remains a prime destination for retirees and those seeking employment opportunities," says Christopher J. Oberhaus, director, research services at Encino, CA-based Marcus & Millichap.

The median price per sf rose by 25% in 2003 to $53, largely due to an increase in investment activity during the year. The average cap rate dipped 225 basis points to 9% "and is expected to decline further this year as investment activity accelerates," Oberhaus says.

Construction of new product in the Southeast this year is expected to lead the nation, the analyst says. Builders are forecast to deliver two million sf of self-storage space in 2004, after completing 3.4 million sf in 2003.

However, the lease-up of recently completed self-storage facilities "will temper rent growth in 2004," Oberhaus says. In 2003, owners were able to increase rents on larger units, but lowered rents on 5x5 units "in an effort to entice potential self-storage users," he says.

Rents for 5x5 units dropped 4% in 2003 to $31 per unit. Users of 10x10 units paid an average $66 per unit, up 8.4% from 2002. Rents for 10x20 units climbed 12.4% to $103 per unit. "Rising rents in the more popular unit categories and the completion of millions of square feet will not dampen occupancy levels in 2004, as the region continues to post strong population growth," the Marcus & Millichap researcher says.

In 2003, the Southeast region reported a 240 basis point increase in occupancy levels, to 85.4%, "which is 80 basis points above the national average," Oberhaus says.