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

Greg Wendelken Comments
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Moving into 2010, transaction velocity will likely stay constrained through the first half of the year, as investors continue to take a wait-and-see approach to the near-term direction of the market.

Investment activity will center on smaller, stabilized assets in strong locations nationwide. Properties under $3 million that have positive cash flow and local financing available will garner the most interest. Cap rates, though difficult to discern due to limited activity, average in the 8 percent range for class-A properties, while class-B properties are trading at 9 percent and above.

Initial yields in both classes are up about 25 basis points to 50 over the last six months. Cap rates will continue to rise in 2010 as buyers underwrite for higher vacancy rates and increased concessions.
Rents Expected to Decline in the Northeast

Developers were expected to add about 625,000 square feet of new self-storage space to the Northeast in 2009, down from 1.5 million square feet in 2008. Over the past five years, completions have averaged 1.5 million square feet annually. Three projects were brought online in Brooklyn, N.Y., totaling about 160,000 square feet. The planning pipeline for the Northeast contains approximately 2.2 million square feet, a decrease from 5.3 million square feet six months ago.

Despite a significant decline in new inventory, waning demand related to job losses, along with a weaker single-family housing market, eased regional occupancy to 86 percent in the second quarter. The Buffalo, N.Y., metro area currently has the lowest occupancy rate in the region in the high 60 percent range, while Providence, R.I., has the highest occupancy rate, in the high 80 percent range.

The average asking rent in the Northeast is $1.04 per square foot, down 1.6 percent year over year. Soft housing and employment-generated demand will further drive down rents through year end.
Transaction velocity has declined 29 percent over the past year, with the median price falling 5.9 percent to $64 per square foot, as of the third quarter.

Additional price drops are expected as buyers underwrite deals for greater use of concessions and lower occupancy levels. Cap rates currently average in the high-8 percent to low-9 percent range, up about 50 basis points from one year ago, and will continue to tick higher due to investors’ expectations for increased near-term risk.
Greg Wendelken is the national director of the National Self-Storage Group of Marcus & Millichap Real Estate Investment Services in Seattle. To reach him, call 206.826.5700; e-mail

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