|Copyright 2014 by Virgo Publishing.|
|Posted on: 01/01/2003|
While they may not have an all-seeing crystal ball, the industry experts who shared their predictions for the upcoming year with Inside Self-Storage do know a thing or two about the business. They are self-storage consultants, presidents, CEOs and all-around gurus. Here's what they foresee for 2003.
Jim Chiswell, President, Chiswell & Associates LLC
WE HAVE SEEN A REDUCTION IN NEW STARTS THIS PAST YEAR. This is reflecting a number of factors in the overall economy as well as the reality that finding a new site to develop has become much more difficult. I feel 2003 will actually see an improvement in new starts. Part of the increase will be from project developers who have been getting final approvals and financing for over the past year. The other factor is the continued increase in visibility the industry is receiving. I feel very strongly that the impact of General Electric's ownership of Storage USA will be truly felt this year in drawing even more attention to this asset class.
Many communities are beginning to understand that self-storage is, in reality, a service business that has a positive impact for residents as well as small and home-based businesses. Planners are starting to appreciate the fact a self-storage store has a benign impact on municipal services and infrastructure. This enlightened attitude will help development. I also feel we have dispelled the idea a self-storage store will bring down real estate values in an area. Local residents trying to block construction of new stores have used this unfounded argument for years.
Another area of growth I foresee in the next several years is in the area of third-party management. We will see many owners turning over the reins of the day-to-day management of their stores to professionals. This is a very positive trend in upgrading the customer-service aspect of our industry, which has been sorely lacking.
Chiswell & Associates will continue to promote the self-storage industry whenever possible and maintain its focus on upgrading the professionalism of all its employees. Our goals include encouraging potential developers to build intelligently, ensuring they fully understand the micro-market area they will serve. There have been a number of stores built across the country by entrepreneurs who still believe we are operating in a "if you build it they will come" business climate. We all face a much more competitive environment today.
Mike Burnam, CEO, StorageMart
I SEE SELF-STORAGE DEVELOPMENT SLOWING DOWN IN THE MAJOR MARKETS but continuing at the same pace as 2002 in the smaller secondary and tertiary markets. Local banks are still the main source of financing, and they have plenty of money to loan. I have begun to hear about some self-storage foreclosures. When this news trickles down to the smaller lenders, I suspect the credit will tighten.
We have seen many new entrants into the industry, and they are beginning to ask why their projects are not full after 18 months. I expect their lenders to begin making cash calls--they will make the first one or two and then begin prospecting for buyers. When some of these people start having to sell, we will see a wave of sellers hit the market, which will probably depress the prices slightly.
The slowdown is mainly due to economic rather than political reasons. We have been in a mild recession for the past five quarters and, although our product is as recession-resistant as any, we are beginning to feel the pinch. Yes, people use us when they are moving up as well as down in life, but unless we have a major up-tick in the overall economy, we will continue to see lagging occupancies and, more particularly, the inability to raise rents. This does not mean new, well-located properties will not continue to do well to the detriment of the out-of-position, older properties. Newer, better-located product will always outsell older and will do comparably better in growing NOI.
We need to exercise patience. We have always made more money in bad times than in good. Save some powder for the deals you know will be there. Get our operational shop in order. We need to make sure we are doing everything we can to attract and sell every phone call and customer. We need to learn more about our customers--where they come from and what needs they have--to ensure we are the best at providing the services required.
Michael Kidd, Executive Director, Self Storage Association (SSA)
MOST LIKELY, THE TREND OF DECREASING NEW STARTS WILL CONTINUE FOR A FEW MORE QUARTERS. There are also a number of sizable securitized portfolios maturing in the next six quarters that may inspire some ownership consolidation. If interest rates remain low, it is an ideal setting for the market share to change toward being less fragmented without experiencing radical expansion.
I also expect more economic schizophrenia. Over the past five quarters, the national and global economies have suffered some extreme swings; yet capital for self-storage development has remained available and attractively affordable. As most investors are aware, the decreases in interest rates have prompted a lot of new commercial loan and refinance activity. This type of transactional activity is difficult to classify as a slowdown. As a matter of fact, I think it is very healthy that capital continues to circulate through the industry.
The SSA will continue to focus its attention and resources on supporting members with educational and communication services and products. We will also continue to advance the industry's message to public officials until the self-storage industry is regarded with the same respect and prestige as that of the multifamily, office and retail real estate sectors.
RK Kliebenstein, President, Coast-To-Coast Storage
INITIAL INDICATIONS SHOW A SLOWING OF DEVELOPMENT as great sites become harder to find and zoning becomes more difficult. This is not necessarily a bad trend, as it may allow for the market to become stronger, push occupancies upward and, hopefully, drive stronger rental rates. The trend among banks seems to be a higher equity requirement for inexperienced developer/owner projects. It seems more first-time developers are seeking the advice of consultants for feasibility studies, and looking for experienced management companies to get their projects off on the right foot when they open their doors.
Unfortunately, economic and political forces are working against self-storage. As an industry, we have not done enough to further our own cause. Banks barely respect us, and few understand who we are and what we do. Cities and municipalities are clearly in need of education. We are being targeted as no other business type. In what municipality are there distance requirements between one furniture store or restaurant and another? In what cities are they creating zoning restrictions against fast food as a business type (other than for traffic reasons)? So why are we allowing cities to dictate that self-storage is not an acceptable use? It is humorous, but there are many cities where it would be easier to build and operate a topless bar than a self-storage property.
Our firm is committed to be the No. 1 resource for self-storage developers and owners, whether it be for feasibility or financing.
Gerry Gotfrit, CEO, StorageMAXX Canada Inc.
WE DO NOT FORESEE A LOT OF DEVELOPMENT in self-storage in Canada, but do believe there will be a consolidation by the three or four major owners in the country. Unlike in the United States, Canadian cities are under-stored. Canadian lending institutions have not supported the storage industry and have not been directly funding self-storage development in recent years.
Our mission in the upcoming year is to acquire as many existing storage facilities in Canada or convert industrial buildings in the right locations to self-storage. Our goal is to become the largest self-storage company over the next three years. Our stakeholders include the Deutsche Bank, along with some prominent real estate investors and developers. With the General Electric debt program provided us, I believe we can achieve our goal.
Len Kosar, President and CEO, Storage USA
SELF-STORAGE DEVELOPMENT IN 2003 ALL COMES DOWN to investment options and interest rates. If the stock market starts to come back to life, the economy starts coming back a little bit, and interest rates start popping upward, that's going to have a real dampening effect on the aggressive development we're seeing, which is a good thing. When you have a tough economic environment, there's a lag effect before the recession-resistant nature of our industry starts to kick in.
Those people who are foreclosing on houses are moving into apartments. People in bigger apartments are moving into smaller apartments. People in smaller apartments are moving back in with mom and dad. In the commercial environment, you have businesses focused on reducing their office space. When you get businesses downsizing office space, we benefit. Those lagging effects of a tough economy can potentially hit us in a positive way in the next six months.
We'll likely see improving occupancies because the new capacity is getting absorbed. It will feel like demand went back up. Some of these areas got so heavily overbuilt, they may never come back. But, on a national level, there's going to be natural absorption of this capacity into the market and we'll start to see things get a little better.
With Storage USA, we need to get faster, leaner, more efficient through the use of digitization. We need to take nonvalue-added work off our people and have them focus on the higher-level, value-added work. Whether it's a property manager, district manager or division VP, we've got to get the mundane tasks off employees and get them automated through better information systems. That's a big piece of what we're trying to do.
Also, we've got to get better at dealing with the commercial customer base. We tend to think of the homeowner when, in reality, a big piece of our business is the commercial customer, the small business owner. What types of good marketing and value-added services can we point in their direction and serve them better? Lastly, we'd like to be much smarter in our revenue management and manage our rates with a revenue-management approach, rather than with an off-on promotion-type program.
Jim McNamee, Regional Vice President, Shurgard Storage Centers Inc.
OVERALL, I WOULD EXPECT A SLOWDOWN IN DEVELOPMENT. OCCUPANCIES AND RATES have eroded in our markets. Typically in this environment, especially when the overall economy is slow, land costs also come down. We are not seeing a decrease in land costs, largely due to low interest rates. As a result of lower rates and occupancies and no decrease in the cost of land and development costs, I do not foresee the same level of development over the next two to three years.
We have seen a slowdown due to overall economic factors since 9/11. While I do not think it will get a lot worse, recovery will be slow, and the slump we are in will continue at about the same pace in 2003. If we go to war, the environment could get even worse, particularly if the war is prolonged.
Shurgard plans to invest in its stores to make the older ones more competitive. We also plan to lengthen our operating hours to take advantage of the few inquiries we are receiving. We plan to add services such as truck rental at most or all of our stores. We plan to modify some of our store functions to enhance the role of our sales center as a selling tool over the phone and reduce turnover at the stores.
We are a self-storage development company and always will be. We will find new ways to fund and/or partner development, but we will continue to develop stores domestically. We may not add as many stores as in past years, but we remain committed to development--domestically and internationally.
Paul McFadzien, Immediate Past President, Self Storage Association of Australasia
BASED ON ASIA'S POPULATION, SIZE AND DYNAMICS, YOU HAVE TO believe it will become a very strong growth market for the industry. The Australia and New Zealand market will continue to expand, although there will be a slow down in certain segments as capacity outstrips demand.
Our major focus for the coming 12 months is membership, education and training. A pilot training session was held late last year in New Zealand and proved very successful, with further pilot schemes to be held in Sydney, Melbourne and Brisbane. By the end of 2003, the Association is planning to have established a fully certificated management-training program for the industry that will be recognized by the tertiary training operators.
Brian Perry, President, Steel Storage Group
IN AUSTRALIA, DEVELOPMENT WILL CONTINUE AT A RATE SIMILAR TO 2002. However, it will be mainly by the established middle- and upper-sized facility owners/groups, with fewer new players in the market.
As far as Asia is concerned, the big name companies, such as Shurgard and GE, are all trying to get in, but with no obvious success at the moment. They will keep trying and will eventually succeed. The main players that are succeeding are Chinese (Singapore- and Hong Kong-based), high-flying developers that have become interested in self-storage. The Asian market will grow slowly and any supplier or builder who thinks he can make instant money off it is very wrong. It is the Asian way to do business slowly but surely, and they must grow to trust you before even thinking about it. However, when you gain their trust and prove yourself, the door is wide open.
In the minds of many Asians--particularly Southeast Asians--Australia is considered part of Asia. Therefore, it is one of Asia's main trading partners in most goods and has quick shipping turnarounds--five to six days for Singapore and seven to eight days to Japan and Hong Kong, for example. The high price of American steel will also have an effect, as Australian and Asian steel is currently more economical. The difficulty U.S. suppliers will find is acceptance and challenges with shipping times. They will also have to expect initial rejection. Remember, in some parts, Asians are also mainly Muslims and have no great feeling for American companies at this time.
In Australia and New Zealand, Steel Storage wants to keep its majority share and keep out those trying to emulate it by copying its operations and systems. In Asia, we hope to control our section of the market by giving clients the best possible design and service. In the United Kingdom and Europe, we want to double our sales with the steady increase in market. Overall, it is our group's resolution to offer new, exciting products to the partitioning/building sector of the industry, with new products and design coming online at all times.
Ken Myszka, President, Sovran Self Storage
WITH THE OVERALL WEAKENING OF THE INDUSTRY DURING THE PAST YEAR--declining occupancies and rental rates in some instances--I would think the pro forma results of comparables would begin to discourage new development. It would only make sense.
We have already seen that slowdown and, hopefully, we are at the bottom of that curve. Sovran has, and always will, strive to improve and strengthen its relationships with customers. Our Customer Care Center is now fully operational, taking calls seven days a week. Additionally, we have introduced our moving trucks to assist all new and existing customers. We hope to have trucks at all of our stores by the end of 2003, and also plan to continue to introduce innovative products. But most important, we will focus on delivering exceptional customer service through the training and education of our sales associates. All the amenities in the world can't help you if you lose sight of the customer.
Ken Nitzberg, President, Devon Self Storage
I EXPECT TO SEE A CONTINUATION OF THE SLOWDOWN of new construction and a continuation of small decline in overall occupancy. Many markets are oversaturated, but there are still many opportunities in the right niche markets for well-capitalized and knowledgeable owner/operators. The very easy days of 1998 to 2001 are definitely behind us.
We already have a slowdown due to economic factors. The slowdown in the economy has not missed the self-storage sector, although it has not been anywhere near as hard hit as some of the other real estate sectors. Again, it is very dangerous and potentially reckless to overgeneralize about the self-storage market as it is so localized. Thus, it can be very bad in one market and very good in another--sometimes in the very same city--as a result of saturation, market demographics, employment, etc.
Devon wants to generate the best financial results possible for its investors. We want to provide the best storage facilities and services for our clients. We want to provide the best workplace for our employees in the self-storage industry, and we want our company to achieve its profit targets.