Self-Storage Performance Trends Nationwide: Occupancy, Concessions and Development

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South-Central Transaction Velocity Remains Relatively Stable

In 2009, approximately 580,000 square feet of self-storage space came online in the south-central region, down from the delivery of 830,000 square feet in 2008. About 280,000 square feet was added in the Houston metro area, which has fared better than most markets during the recession due to the presence of companies tied to energy-related firms. The planning pipeline for the south-central region contains roughly 1.4 million square feet, compared with 1.8 million square feet in early 2009.

The average rent for self-storage space is $0.72 per square foot, unchanged over the last year. Occupancy levels, meanwhile, have declined steadily since the second quarter of 2008, despite limited new inventory. As of the second quarter 2009, the average occupancy rate was 85.2 percent, down 380 basis points year over year and 330 basis points lower than year-end 2008.

The New Orleans metro has recorded the greatest loss in occupancy, falling 1,000 basis points during the past 12 months to the high 70 percent range. The drop is the result of economic challenges and weak residential-related demand.

Transaction velocity has slowed approximately 10 percent over the last year, though activity remained steady during the first half of 2009. Despite more consistent market velocity, prices have fallen 36 percent year over year to $37 per square foot. Cap rates have pushed up about 100 basis points in that time, in the low 9 percent range, and will continue to rise over the next 12 months due to expectations for softer market conditions.
 
Southeast Occupancy Rates Drop

The Southeast was expected to receive approximately 2.3 million square feet of new self-storage inventory in 2009, compared with 2.4 million square feet in 2008. Nearly one-third of the space was added in the Charlotte, N.C., metro area, which currently has more space per capita than the national average. Vacancy will continue to trend higher in the metro over the next 12 months as the new space is absorbed.

The regional planning pipeline contains 2.9 million square feet of self-storage product, down from 5.3 million square feet at the beginning of 2009. Ongoing additions to inventory and a decline in demand related to the recession have pushed occupancy lower. As of the second quarter, regional occupancy was 81.9 percent, a decline of 580 basis points from one year earlier.

Asking rents, meanwhile, were $0.84 per square foot, down 2.6 percent during the same stretch. The Florida markets have recorded the greatest losses in occupancy, driven by troubled housing markets and job cuts. In Jacksonville, occupancy fell from the high 80 percent range in the second quarter of last year to the low 70 percent range in the second quarter of 2009, while asking rents declined by 8.3 percent, the largest decrease in the region.

Investment activity slowed by 42 percent over the last 12 months, compared with an acceleration of about 50 percent in the previous year. Concerns over the housing market and its impact on the local economies have caused investors to limit acquisition activity and seek price discounts.

The median price has declined 29 percent to $45 per square foot during the past 12 months. Cap rates in the region have averaged in the mid to high 8 percent range in the last year, although yields in some recent transactions have been in the 9 percent range.

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