Today, facilities nationwide are operating at about 5 percent below their historical average. The degree to which facilities are operating below or above their historical average varies by location, which accounts for the varying rates of recovery. For instance, in the third quarter of 2010, Washington, D.C., was operating at 10 percent over its historical average, whereas Las Vegas was operating at 10 percent below. Considering the industry has satisfied the pent-up demand, serious questions arise regarding the future rate of rental increases and the impact it will have on facility value.
The impact of changes in asking rental rates and concessions is evidenced in a facility’s physical occupancy and rental income. The majority of operators have tried to hold rates as high as possible during the recession; as a result, physical vacancy has increased, but not as much as it might have without concessions. The type and cost of concessions varies from location to location, and today approximately two-thirds of facilities offer them. The good news (and another sign of recovery) is the number of operators offering concessions has started to decline, as has the dollar impact they have on rental income.
The accompany rental-income graph illustrates how income stopped declining in the second quarter of 2009 and has been trending upward. However, in the third quarter of 2010, the markets softened compared to the third quarter of 2009, reflecting consumers’ continued concern over the pace of the recovery and the creation of jobs.
Based on the trend in rental income at more than 6,000 facilities nationwide, it appears self-storage is in recovery. However, like the overall economy, it will be slow and steady.
The self-storage investment market has returned, and those investors who retrenched during the downturn are embarking on an aggressive but selective acquisition strategy. There are many more buyers in the market than investment-quality assets. All four real estate investment trusts are active, as are the larger operators and some newcomers to the industry.