Fewer Rent Increases
Rent in most Lower Mainland markets remained stable during 2009, with little or no movement. There were some exceptions where rents were increased, including East Surrey/Cloverdale, and one very competitive area, the Newton area of Surrey, where rent decreased because of a significant increase in supply over the past few years. For the most part, any rent increases were selective and based on demand for specific unit sizes. In the markets with new supply, there has been significant discounting of rent as well as rental-incentive programs.
In British Columbia, self-storage operators are waiting to see the effect the new harmonized sales tax (HST), to be implemented in July 2010, on self-storage demand. The HST will combine the 7 percent provincial sales tax not currently applied to self-storage with the 5 percent federal goods and services tax that is applied to self-storage rents. The general feeling is the 12 percent tax will diminish operators’ ability to raise rents, at least in the first year. However, this will be partially offset by tax credits for provincial taxes currently paid but not recovered. Also, as Alberta has no provincial sales tax, HST is not a concern in that area.
Outlook for 2010: There should be some selective rent increases based on occupancy and in British Columbia, where it can be implemented before the HST is applied in July.
It’s difficult to generalize about occupancies in the western markets because the submarkets vary widely based on supply. In the Vancouver Lower Mainland, where the supply is stable, occupancies are generally in the range of 90 percent. Despite that there was little new supply in 2009 and limited new supply anticipated for this year, several submarkets are still in recovery from supply added between 2005 and 2008.
New supply combined with slower economic conditions has resulted in some competitive submarkets with reduced occupancy. In areas where there is a significant supply, leaseup of new facilities or expansion of existing sites has been slow or flat over the past year. Reportedly, occupancies are down in the Nanaimo and Victoria markets as well as the B.C. interior cities.
Occupancies in the Edmonton market were down an estimated 5 percent to 10 percent in 2009 when compared to the previous year. It’s been reported that in some competitive markets, rents have been lowered in an attempt to increase occupancy.
Outlook for 2010: There are signs of recovery in early 2010 in most markets surveyed.
Buying and Selling Self-Storage
The Alberta and B.C. self-storage markets continue to be characterized by few sales. Although it was predicted that capitalization rates would rise with interest rates, interest rates have remained low, and there is little direct evidence to indicate cap rates have risen. What has changed is the amount of time required to sell a property, as the gap between vendors’ and purchasers’ expectations remains.