The Canadian self-storage market experienced significant changes in mid-2006 with the formation of InStorage Real Estate Investment Trust (REIT), focused on the acquisition of self-storage facilities. In one year, the company amassed the largest self-storage portfolio in the country. In the process, cap rates went from the 8.5 percent to 9 percent range in 2006 to the 7 percent to 7.5 percent range in 2007.
Spurred by the activities of InStorage REIT as well as low interest rates and readily available financing, other portfolio owners became more aggressive in their acquisition activities and cap rates dipped to the lowest level ever seen for self-storage—below 7 percent.
Although there were a few sales in Western Canada in late 2007, there was almost no sales activity in 2008, evidence of a disconnect between vendors listing at 2007 cap rates and purchasers unwilling to pay 2007 prices in the changing economic climate. This period of limbo continued into early 2009.
Occupancies faltered in late 2007 (from 95 percent-plus in most markets) and seem to have dipped slightly in late 2008 and early 2009, but the outlook for occupancies in the year ahead is that they will hold steady. Supply increased at the usual rate in 2008, but the outlook for 2009 is for sharply reduced new supply.
Rents continued to increase in most markets through 2008, but the outlook for 2009 is that rents will be level or selective increases will be implemented in specific unit sizes based on occupancy. The general forecast for the year ahead is self-storage in West Canada will hold steady with a balanced supply in most markets.
New Development Slows
Most of the major markets in British Columbia and Alberta have experienced a significant increase in supply over the past five years. The Vancouver Lower Mainland supply has increased by more than 400,000 square feet, or an average of six facilities per year between 2005 and 2008. The average facility size is 55,000 square feet. The total supply is estimated at 5.7 million square feet in 106 facilities, or 2.33 square feet per capita as of December 2008.
The outlook for 2009 is for a very limited increase in supply. According to industry sources, 45,000 square feet comprising phase one of a new facility in Mission will open in March 2009. There is also a small expansion of an existing facility in Surrey under way (10,000 square feet), and completion of phase two of a new facility in Richmond may move forward in 2009, adding another 20,000 square feet.