Self-Storage in the South-Central States: Real Estate Snapshot

Michael L. McCune Comments
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What’s happening in your market with occupancies, rental rates and delinquencies?

Barnhill: In the past two months, we’ve seen a slow and steady increase in occupancies. Rental rates are holding, but with more concessions. The delinquencies are about the same as before, although more collection effort is required. The average occupancy for these areas is around 85 percent. With all this said, a few submarkets are depressed and offering steep concessions. Some overbuilt submarkets have an average occupancy as low as 50 percent.

Cerruti: Rental rates are being pressured. Occupancies are falling, and delinquencies are on the rise. None of these are drastic, but rather a natural occurrence related to our present financial situation.

Comiskey and Owens: For the most part, occupancy has remained fairly stable, depending on the season. I’ve heard of a lot more rental concessions now than in the past.

Grisanti and Helline: The established facilities are showing little, if any, increase in vacancy. For newly built facilities, occupancy rates are slow to increase. The bottom line is established facilities are doing fine, and new (or expanded) facilities are slow to fill.

Keys: While the capital markets are in turmoil, operating storage facilities are holding steady. Our data indicates only a modest decline (less than 5 percent) in income on a macro basis (the product of occupancy and rental rates). Despite the economic downturn, demand for storage space has not significantly declined. Delinquency rates, however, have risen from 2 percent to 3 percent to closer to 5 percent and need to be managed more diligently.

Lehmbeck and Procter: We are seeing occupancy on the rise. Vacancy is declining, with steady rental rates and low delinquencies.

Minker and Trahant: Overall, occupancies have been holding relatively steady. It’s hard to attribute any decrease to the economy because the winter months are typically slower. The majority of the facilities in our market have not raised rates in 12 months. However, there is the expectation that tenants at old rates will be increased slightly in the coming months.
 
What are the detriments to overpricing a facility for sale?

Barnhill: It may discourage a potential prospect from even taking a serious look at it. Once they review the initial numbers and determine that it’s overpriced, they’ll move on to the next deal without taking a closer look. It may also cause a buyer to determine that the seller is not at all serious about selling.

In some cases, potential buyers are afraid to even make an offer for fear they may insult the seller. When a facility is overpriced, it tends to stay on the market, becoming “stale,” and giving the impression something is wrong with it.

Cerruti: Overpricing, simply put, equals, “Will not sell.” Two years ago, a buyer might of had 10 facilities to evaluate and had to act quickly. Now, he has 100 facilities in front of him, and all are begging him to put an offer on the table. If a facility is overpriced, it won’t even warrant a second look. There are too many investment options right now.

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