Proceed With Caution in Secondary Market Self-Storage

Western US secondary market are seeing significant growth in the self-storage market, following strong multifamily activity and investment capital investment in 2018. Las Vegas has been a particularly hot stomping ground for the self-storage market, as well as Phoenix and the Inland Empire market in California. US Storage Centers has acquired a 1,269 self-storage facility in Las Vegas because of rising demand, but as other investors show up and the self-storage construction pipeline is growing, the firm is also proceeding with caution.

“Storage demand in those markets continues to be steady and continued multifamily construction will only help to maintain that demand,” Charles Byerly, president and CEO of US Storage Centers, tells GlobeSt.com. “However, these markets are generally the last few markets to recover from a downturn, which has certainly been the case this go around as well. We are seeing significant storage development in the greater Phoenix market already, so that market will have issues over the next few years.”

While Phoenix may be heading toward supply issues, Las Vegas and the Inland Empire might fair better. Self-storage construction is rising, but land and construction costs have helped to temper activity. “Las Vegas has started to see development in several of its sub-markets, but with construction costs, land costs and rising interest rates, we would hope that development doesn’t go overboard in Las Vegas,” he says. “The inland empire continues to have would-be developers look into sites that are zoned self-storage, but if the developer is being honest with their rental rate and leasing absorption assumptions, those sites do not pencil. Unfortunately, as with every cycle, developers don’t always use realistic assumptions because the deal won’t get done.”