Over the past year, the self-storage investment market has continued to stabilize as financing has become more available in some markets. The industry is also experiencing a greater volume of sales transactions as buyers take advantage of low interest rates. The following real estate experts discuss rental rates and occupancy trends, capitalization rates and how the economy is affecting their individual markets.
- Bill Barnhill, Stuart LaGroue and Shannon Barnes, Omega Properties Inc., Mobile, Ala.
- Bill Brownfield, MKP Self-storage, Houston, Texas
- David Etzold, Etzold & Co., El Paso, Texas
- Jared Jones, Bauer & Associates Inc., Mobile, Ala.
- Richard Minker and Tyler Trahant, CASE Commercial Real Estate, Fort Worth, Texas
What are the current self-storage rental rate and occupancy trends in your market?
Barnhill: The rental rate trend in Alabama and Mississippi has been predominantly flat over the last 12 months. We’ve noticed that certain markets are experiencing more move-outs than usual when a rental-rate adjustment is made. The stronger markets are able to sustain occupancy without this sensitivity to rent increases.
Brownfield: In South and Central Texas, all of our clients have seen occupancy increases over the past 12 months, both in major markets and in secondary markets, and rental-rate increases have been the rule. Each major market has strong underlying fundamental economic growth, though the drivers are different in each of them.
Etzold: For our El Paso/West Texas markets, occupancies are holding strong in the mid-90s. New product is being planned and several projects are under construction.
Jones: Occupancy has been flat for the last couple of years throughout Oklahoma. Expansion projects have been put on hold while existing supply outpaces demand. Rental rates, however, have been increasing slightly, and many owners I’ve spoken with plan on small rate increases in the coming year, which is an encouraging trend.
Minker: In North Texas, we’re seeing mixed responses to this question. While many of the mid-size operators have seen occupancy increase and have taken rental increases, some of the individual and smaller operators have had flat occupancy and are not increasing rates. This is more common with owners of class-B and C properties in older areas. We continually see operators adjust prices based on individual unit occupancies on a real-time basis vs. making “across the board” increases on all units.
Describe the current trends in capitalization (cap) rates in your major market areas.
Brownfield: South and Central Texas have seen a slight downward trend in cap rates due to supply constraints, but the spread between first- and second-tier markets has remained fairly consistent. In some cases, second-tier markets are still looked at rather skeptically by the larger lenders, but demand in these areas should improve through the end of 2012 as buyers look for better yields.