As an industry, self-storage is growing throughout the Canadian provinces, with some markets having experienced significant expansion in the past several years. The following overview provides a summary of storage development and real estate in the western half of the country during 2009 and some predictions for the year ahead.

April 7, 2010

7 Min Read
Self-Storage Real Estate in Western Canada: A Review of 2009, Predictions for 2010

As an industry, self-storage is growing throughout the Canadian provinces, with some markets having experienced significant expansion in the past several years. The following overview provides a summary of storage development and real estate in the western half of the country during 2009 and some predictions for the year ahead. 

Most of the major markets in Alberta and British Columbia experienced a significant increase in supply in the five years up to and including 2008. However, construction tailed off significantly in 2009, and very little new supply is projected for completion this year.

Self-storage supply in the Vancouver Lower Mainland increased by nearly 400,000 square feet annually, or an average of six facilities per year, between 2005 and 2008. In 2009, however, only one new facility was completed (45,000 square feet), as well as two expansions to existing sites, for a total addition of approximately 115,000 square feet.

The outlook for 2010 is for the completion of one new conversion facility (108,000 square feet) and two expansions. However, one facility will be removed to accommodate highway improvements, resulting in a net anticipated addition to the supply of 51,000 square feet.

Facilities in Chilliwack came onto the scene late last year, bringing the total supply in the Lower Mainland to an approximate 6.1 million square feet in 111 facilities. This supply represents approximately 2.4 square feet per capita using population estimates from B.C. statistics.

The Capital Regional District has a supply of approximately 693,000 square feet of self-storage in 24 facilities, with an estimated supply per capita of 2 square feet. There were no new additions to supply last year, though a small expansion is underway at one conversion site, which will add about 7,500 square feet to the inventory in 2010.

The Nanaimo trade area will have a supply of 422,000 square feet of self-storage in 15 facilities upon completion of a new 90,000-square-foot facility this spring. There were no new additions in 2009.

Calgary and Edmonton each have an estimated supply of about 2.5 square feet per capita. A new 95,000-square-foot facility in Edmonton was completed last year. To my knowledge, there are no new facilities to be completed in 2010; however, several existing facilities have expansion capability. There was no new self-storage space constructed in Calgary in 2009, though there are several new facilities in the design stage that may move forward this year but will not be complete until 2011.

In summary, there was very little new self-storage space added in the western markets in 2009 and limited new development is anticipated for 2010. 

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. 

Occupancy Varies

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.

In British Columbia, there were two sales in late 2009 of facilities with almost 90,000 square feet of net rentable area (NRA). One was well-established in an interior town, with stabilized occupancy and a good location. It sold for an estimated 8 percent cap rate after one year of marketing ($106 per square foot of NRA).

The other facility had a more urban location within the Lower Mainland, in an area with a significant amount of new supply, which affected occupancy. The property, which has the potential to add a third phase, has been on the market since 2007. The sale price (share sale) reflected a value per square foot of NRA in the range of $129, after adjustment for the expansion potential, and a cap rate lower than 6.5 percent. A small, 15,000-square-foot facility in Victoria sold in mid-2009 at an estimated cap rate of 6.5 percent after being on the market since 2007.

To my knowledge, there were very few sales in Alberta in 2009, though two small facilities (31,000 and 25,000 square feet) in the towns of Stoney Plain and Whitecourt sold at prices indicating a range of $61 to $123 per square foot of NRA. Both have land for expansion. 

Predictions for 2010

Judging by the current state of the Canadian self-storage industry, a limited new supply in all markets should result in an improvement in occupancy, depending on economic conditions. There will be modest rent increases on select unit sizes based on occupancy, and there will be uncertainty in the B.C. market based on the potential effect of the HST. Few facility sales will be completed due to the limited amount of product on the market and the gap between purchasers’ and sellers’ expectations as to value. Finally, a re-entry of large players is possible based on the availability of capital. 

Candace Watson is the principal of Canadian Self Storage Valuation Services Inc., which provides appraisal and feasibility analyses to self-storage owners and developers. Watson has been appraising self-storage facilities since 1978 and has evaluated approximately 40 percent of the current supply in the Lower Mainland. She is a regular speaker at industry tradeshows and conferences. To reach her, call 604.681.2929; e-mail [email protected].

Related Articles:

The Canadian Finance Market: Alternative Options for Self-Storage Owners

Overview of Self-Storage in Western Canada: Holding Steady During Difficult Times

A Year for Expansion: Self-Storage in Canada 2007

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