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Self-Storage in the Western States: Real Estate Snapshot

Michael L. McCune Comments
I recently assembled a roundtable of real estate experts to discuss the state of self-storage in the Western United States. I asked them to comment on their local markets and share their predictions for future performance. Joining us in the discussion are: 
  • Richard Arnold, Argus Northwest Real Estate, Hillsboro, Ore.
  • Marc Handley, HRE Inc., Salt Lake City
  • David Laney, RealStar Commercial Real Estate, Albuquerque, N.M.
  • Ryan Layton, American Real Estate Associates, Spokane, Wash.
  • Joan Lucas, Joan Lucas Real Estate Services, Denver
  • Stuart Ripley, Business Team, Roseville, Calif.

1. How are self-storage occupancies holding up in your market? Are owners in your area using rent concessions or new advertising avenues to attract customers?

Arnold: Occupancies in Oregon have held up fairly well, with vacancies ranging between 10 percent and 20 percent. This isn’t substantially greater than it was a year ago. Many owners are offering a full month free after three months of occupancy in lieu of cutting rental rates.

Handley: In Utah and Nevada, we’re definitely seeing a slip in occupancy levels, but owners haven’t been too concerned. There haven’t been many changes in terms of concessions offered, but we’re seeing owners evaluating expenses to cut costs. One of the big areas we’re seeing a reduction in is advertising, especially in the Yellow Pages. Many owners are trying to focus on drive-by advertising and Internet marketing to reduce expenditures.

Laney: In Arizona, the Phoenix market has taken the brunt of the economic downturn, with storage operators competing for few renters in an overbuilt market. Commercial-business rentals have fallen off as small businesses have closed due to the economy.

The Mesa/Tempe markets have experienced loss of occupancy as tenants have either downgraded their unit size or simply moved out. Scottsdale has experienced the least downturn; foreclosures and truck rentals for job relocations have helped buoy that market. The Tucson market is down but stable.

The Colorado River Valley markets have been impacted by a double whammy thanks to a downturn in gambling tourists in the Las Vegas, Laughlin and Los Angeles areas.

New Mexico storage owners have actually benefited from the lower gas prices and the changing economy. There has been either little loss or even a small uptick in rental activity due to job relocations. Several operators mentioned they intend to upgrade their signage or facility appearance and offer incentives.

Layton: Occupancies have remained fairly stable in Washington, especially in the major markets. Some owners who built in the past three or four years are doing creative marketing to get customers, but the stable properties are not conceding on rent. Some are copying Public Storage’s $1 first month or other move-in specials but, overall, most facilities are holding rents firm.

Lucas: We recently co-hosted a dinner with Extra Space Self Storage for 40 self-storage owners and operators in Colorado. It was interesting to learn that the owners in areas with strong demographics seemed to weather the storm better than those in the lower-income areas. One owner said he had more large units available, but all the small units (with higher rates per square foot) were 100 percent occupied. All reported that delinquencies are up, and they’re doing what they can to get new tenants in the property and retain those they have.

Ripley: In North California, facilities that have been established for more than three years are hovering at 75 percent occupancy and better. Some operators are using discounts or free-rent deals to attract new tenants. There has also been an increase in renters who are vacating their class-A office space in favor of more affordable office-warehouse units. 

2. What types of buyers are in your market, large regional and national owners or small, local operators and new owners?

Arnold: Buyers in my market are typically the larger public companies and syndicates, but there are few sellers willing to part with their properties.

Handley: We see buyers of all types in our market, but the majority of transactions belong to small, local or out-of-state operators. National companies will take an interest in the larger facilities if they’re established in the area or if they can acquire multiple assets.

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