Self-Storage REITs Capitalize on Market Conditions, Says Real Estate Firm Cushman & Wakefield
|Copyright 2014 by Virgo Publishing.|
|Posted on: 04/27/2012|
Self-storage real estate investment trusts (REITs) are reaping the benefits of growing consumer demand and a record-low level of new facility development, according to Christian Sonne, managing director of the Self Storage Industry Group for Cushman & Wakefield, one of the world's largest privately held commercial real estate services firms. In an interview with REIT.com, the official website of the National Association of Real Estate Investment Trusts (NAREIT), Sonne shared several positive market factors for self-storage REITs.
Because of the current supply-demand dynamic, Sonne anticipates self-storage will continue to command higher rents. While the number of new facilities opening is low across the country, Sonne told the source market conditions are especially strong in key cities in the eastern United States.
There were fewer than 100 new self-storage facilities built in 2011, and Sonne said 2012 is off to a slow start. Meanwhile, occupancy rates for self-storage REITs are up 2.2 percent from the fourth quarter of 2011, compared to 1.1 percent nationwide for all self-storage companies. Sonne added self-storage customers are gradually increasing their average stay, which is now between a year and 15 months.
With occupancy rates rising, the average rental price for self-storage REITs is up 6 percent in the first quarter, compared to a 2 percent decrease nationwide for all self-storage companies.
Sonne attributes some of the REITs' success to what he called the “sophisticated management platform” of each of the four companies: CubeSmart, Extra Space Storage Inc., Public Storage Inc. and Sovran Self Storage Inc. (Uncle Bob's Self Storage).
Self-storage REITs generated total returns of 29.83 percent last year, while the FTSE NAREIT All Equity REIT Total Returns Index was up 11.29 percent. In the first quarter of 2012, self-storage REITs had total returns of 2.70 percent.
Sonne said that during the recent recession, the foreclosure rate in self-storage was low and affected mostly small operators. He added self-storage has the lowest share of distressed assets of all sectors of the REIT industry.
Last, Sonne predicted the growth of public self-storage companies will most likely come via acquisitions as opposed to new construction. However, as talks of consolidation in the industry continue, Sonne said the pace is very slow. Although more REIT investment money is flowing into the self-storage sector, REITs own less than 20 percent of the industry.
“There are more buyers than sellers,” said Sonne, adding that many private owners are choosing to not sell and lock in at low interest rates.