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Self-Storage Real Estate in the South-Central States: Insight on Facility Occupancy, Sales and More

By Ben Vestal Comments

I recently assembled a roundtable of real estate experts to discuss the state of self-storage in the south-central region. I’ve asked them to comment on the state of the market in their areas and share their thoughts on how the industry will perform in the future. Joining us in the discussion are:

  • Bill Barnhill, Stuart LaGroue and Shannon Barnes, Omega Properties Inc., Mobile, Ala.
  • Mack Browder, Crye-Leike Commercial, Memphis, Tenn.
  • Bill Brownfield, MKP Self-Storage, Houston
  • Jon Cerruti, Jack Stumpf & Associates, Harvey, La.
  • Larry Goldman and Holly Mills, RE/MAX Best Associates, Overland Park, Kan.
  • Jared Jones, Bauer & Associates, Tulsa, Okla.
  • Richard D. Minker and Tyler Trahant, MinkerTrahant & Associates, Forth Worth, Texas

How have self-storage occupancies and leasing activity held up in the major metropolitan statistical areas (MSA) over the last year?

Barnhill: In Alabama and Mississippi, unit occupancies have suffered only slightly, but due to prevalent price discounting, the impact on income has been more detrimental. Overall, the slow economy has had a negative impact on the self-storage business in our major MSAs.

Browder: The major MSAs in Tennessee are Memphis, Nashville, Chattanooga and Knoxville. In speaking with self-storage operators in these areas, it appears occupancies are down slightly in 2010, along with leasing activity. Most are optimistic about a slight pick up in occupancies and leasing activity in the coming months, depending on the improving jobs outlook.

Brownfield: In each of the major markets in south and central Texas—Houston, Austin and San Antonio—almost all the owners we spoke with said vacancies grew by 4 percent to 6 percent in 2009, then markets were flat in the first quarter of 2010. Positive absorption has kicked in every month since March. There’s positive job growth, but it’s still tough going. Overall, we think occupancies and rates will hold up through the remainder of the year.

Cerruti: In Louisiana, occupancies have dropped the last two years to average between 75 percent and 80 percent. This year has been relatively stable, with little or no reports of increases or decreases in occupancy.

Goldman: For the most part, central Arkansas has continued to perform well over the past couple of years and should remain stable for the foreseeable future. Northwest Arkansas is slowly starting to recover from the overbuilding from a few years ago. There are a few sub-markets that have benefited from the recession, as downsizing has actually stimulated demand for storage in those areas.

Jones: Throughout Oklahoma, occupancy levels have remained flat. I anticipate they’ll drop during the coming fall and winter months because of seasonality, but they should rebound as usual in the spring.

Minker: We’ve found the north Texas market holding its own relative to what we’ve read about the national market. What has been somewhat universal is existing stabilized facilities with 70 percent to 80 percent occupancy have seen a portion of their facilities losing 5 percent to 10 percent in occupancy, others are holding steady and a limited number have increased occupancy.

As we are seeing investors re-enter the acquisitions market, should potential sellers hold for a while longer or is now a good time to sell?

Browder: Most buyers are interested in larger facilities with some climate-controlled units. Financing continues to be an issue with all real estate, so qualified buyers are still relatively scarce. Deciding when to sell is a function of the owner’s needs. If the owner is optimistic about continuing improvement in the economy and in the operation of his facility, I recommend holding off on a sale for another 12 to 18 months.

Brownfield: Owners who don’t have a pressing need to sell should probably hold on and wait for their market to continue recovering. The Texas population is growing, which bodes well for storage long term even if job growth is currently anemic. Capital markets are loosening up a little, so there should be more lending on the horizon. That should mean stable to slightly higher values, since there will also be more bidders as availability of debt increases. Owners approaching retirement and worried about the effects of higher capital-gains tax should consider selling.

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