Self-Storage Outlook 2012: Positive Signs in the U.S. Economy Bode Well for Industry Performance and Investment

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By Michael Hoffman

Positive signs in the U.S. economy could mean improvement in the self-storage sector in 2012. Low interest rates, unemployment and strategic home foreclosures could mean a higher demand for storage space in some areas, and unique opportunities are developing on the investment side of the business.

The latter part of 2011 brought a steady stream of positive readings for the U.S. economy and commercial real estate. The data points failed to shatter any recovery records, but they reaffirmed that the economy and commercial real estate sector are headed in a positive direction.
Underlying data on jobs, core retail sales and corporate profit beat expectations by a margin large enough to substantially reduce recession fears:

  • Private-sector hiring in the fourth quarter totaled 466,000, up from 438,000 in the fourth quarter of 2010, which helped push hiring to 1.8 million for the year.
  • Government job losses appear to be easing, and the prior months' overall job readings have consistently been revised upward for several months.
  • Core retail sales continue to show year-over-year growth in the 5 percent to 6 percent range, and holiday sales grew by 3.8 percent over 2010.
  • Consumers are still under tremendous pressure but have shown significant resilience amid the financial-market turmoil and recession talk. The labor market is on a gradual recovery trend, which is expected to have a positive impact on commercial property occupancies. Preliminary data shows occupancies across all property sectors, including self-storage, improved moderately in the fourth quarter of 2011.

Self-Storage Operations Strengthened

By the end of the third quarter of 2011, self-storage operations in the Northeast began to improve after two quarters of losses. Occupancy increased to 89.7 percent in the third quarter of 2011, an increase of 2.7 percent on a year-over-year basis. Assets in Boston and the New York-Newark metropolitan statistic area (MSA) were among the most sought-after in the region. Boston occupancies increased 300 basis points to 90.8 percent by the third quarter, while New York-Newark occupancies jumped 120 basis points to 90 percent. Rents increased 2 percent in the New York-Newark region to $1.55 a foot.

Occupancies stabilized across the Midwest, with East North Central’s rate increasing 20 basis points to 82.2 percent and West North Central jumping 10 basis points to 83.6 percent. Ohio markets boasted some of the best fundamentals: Occupancies in both Cincinnati and Cleveland rose 1.8 percent to 80 percent and 84 percent, respectively. Cincinnati rents also jumped 1.4 percent to 75 cents per square foot.

In the South, self-storage occupancy rates increased 10 basis points to an even 80 percent. Atlanta and Orlando, Fla., were standout performers in the Southeast as occupancies in both metros jumped 3 percent to 80 percent by the end of the third quarter. Meanwhile, Atlanta rental rates shot up 2.7 percent to 75 cents a square foot.

The San Francisco Bay Area boasts some of the strongest self-storage fundamentals in the nation, trailing close behind the New York-Newark MSA. Occupancy accelerated 5.9 percent to 85.9 percent in San Francisco, while the entire western region’s occupancy dropped a nominal 10 basis points to 83.9 percent.

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