Self-Storage Real Estate in the North-Central States: Experts Discuss Rental Rates and Market Outlook
|Copyright 2014 by Virgo Publishing.|
|By: Ben Vestal|
|Posted on: 08/17/2013|
Has an increase in consumer demand for self-storage in the north-central states enabled facility operators to increase rental rates? Are these areas prime for buyers seeking quality self-storage real estate investments? Find out in this roundtable discussion, where industry experts provide insight to their individual markets and current buyer profiles. Our participants are:
What are the current rental-rate trends in your area? Are you seeing rates rise as the self-storage market continues to improve?
Bahrmasel: In Chicago and the greater Illinois area, rental rates continue to rise and concessions decrease in response to increased demand for self-storage.
Goldman: In nearly all markets in Kansas and Missouri, I’ve seen rental rates and occupancy rates rebound in varying degrees. I would expect this trend to continue as the economy improves and stabilizes throughout the region.
Helline: In Kentucky, the rental rates are moving up. With occupancy in the high 80 percent to 90 percent range, owners are asking for and getting higher rates. Most of the markets in Indiana are having similar success. Tennessee has a strong major metropolitan self-storage business (Chattanooga, Knoxville, Nashville) that bodes well for rent increases. However, the rural areas seem to be overbuilt with a lot of small facilities (7,000 to 10,000 square feet), resulting in fewer opportunities to increase rates.
Soltis: In Michigan, operators are poised to raise rates if they haven’t done so already. There has been some reluctance to increase rates and lose business. Although occupancy levels have increased with the improving economic market conditions, the turnaround has been more gradual.
Venesky: Occupancy has been improving across the Ohio region, stronger in the metropolitan areas, but solid overall. However, this is just starting to impact rental rates, as many complexes are now reaching a stabilized occupancy rate and are starting to focus on increasing rates. Over the next 12 to 18 months, this trend is expected to continue.
What market areas in your territory present a good outlook for self-storage?
Bahrmasel: Since development has virtually stopped in Chicago and northern Illinois, many areas are in good shape, as increased demand is being met with stagnant supply. Rather than seeing many new developments, we’re seeing add-ons to current locations.
Goldman: With the exception of areas dominated by tourism, most areas in Kansas and Missouri are seeing improvement. Some areas are back to or have surpassed pre-2008 levels of performance, while others are slowly coming back at a consistent pace but have not yet hit those levels.
Helline: The major markets in Indiana, Kentucky and Tennessee have sustained themselves through the tough times. With a stable economy, the self-storage business has nowhere to go but up. With the improving economy and self-storage attaining higher occupancies in the larger cities, the smaller surrounding secondary markets will benefit.
Venesky: The strongest areas are expected to follow the path of new residential construction. In Cleveland, this will be in the southeast and southwest suburbs. In Cincinnati and Columbus, this will be in the north and east suburbs. All three metropolitan areas will also see a growing demand in the immediate downtown area, as all have experienced and are expected to continue to experience solid growth in downtown housing. Finally, the southeastern part of the state, along the Ohio/Pennsylvania/West Virginia border, is expected to show a marked increase, directly associated with the blossoming energy sector.
What types of buyers are dominating purchases in your areas?
Bahrmasel: Buyers in Illinois consist primarily of local owners who have two to six properties, understand their market well, and know how to fold listings into their operations.
Goldman: Buyers in Kansas and Missouri are mostly local operators who own several stores already and want to build an economy of scale in owning more facilities. What amazes me is how quickly the buyers are turning around underperforming stores. More often than not, when I look back after six to 12 months at properties I’ve sold, they perform significantly better than the pro forma we put together.
Soltis: Most of the buyers in Michigan are local owners. However, there are a few large operators (national, regional, local) that track everything of size (40,000 square feet plus) and occasionally step in to purchase.
Venesky: Local independent owners continue to dominate the purchases in the Ohio marketplace, as the number of institutional-quality assets in the state is limited.
Ben Vestal is president of the Argus Self-Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail firstname.lastname@example.org; visit www.argus-selfstorage.com .