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Self-Storage Real Estate in the Western States: Sales, Cap-Rate Trends and Development Opportunities

By Ben Vestal Comments
Continued from page 1

What markets in your area present a good opportunity for new self-storage development?

Berry: There are still "free rent" signs in Salt Lake City, and occupancy rates are running as low as 60 percent in some properties. I’m aware of occupancy rates in the Reno area as low as 65 percent and in the Reno suburban markets as low as 50 percent. Overall, Utah and Nevada will not likely see an increase of development for some time.

Boldish: Oregon continues to suffer higher unemployment rates than the national average. Other than Portland-metro, all other areas in Oregon are second- and third-tier markets. Southern Oregon is overbuilt at this time, with owners slowly increasing occupancy, but with rental rates still equal to or trailing those of four to five years ago. Portland, Salem and Eugene are still good markets for existing storage properties. Buyers have also been seeking under-performing properties and bank foreclosures rather than new construction.

Davidson: Orange County is the current job engine of Southern California, with Los Angeles a close second, followed by San Diego. San Bernardino and Riverside counties continue to lag behind. The “economic bottom” has been reached and a long slow climb upward is likely. Population centers are experiencing increased density, and most urban areas are fully built out. As a result, improving existing facilities or converting existing space is usually the least expensive option to meet future demand. Development sites are rare except in outlying regions, and only well-organized and -financed groups will be able to devote the financial resources and time necessary to build new product.

de Jong: We’ve seen four facilities built in the past 18 months in the Silicon Valley, mostly on arterials and in-fill locations. The residential market is continuing to improve throughout most of the Bay Area and, as such, we should continue to see quality development opportunities. The biggest challenge we’re facing is the rising cost and lack of availability of quality sites. Prices for residential land have been reported at close to $100 per square foot in some Bay Area markets, driving the cost of industrial/commercial-zoned land to as high as $40 to $50 per square foot, a challenge for most self-storage developers.

Gorden: There are several areas that present great opportunities for self-storage in Arizona. There are growth areas in the southeast and northwest Phoenix suburbs of Gilbert and Surprise, respectively. New-home sales are brisk, and there’s steady job growth. Across the state, boat and RV storage has weathered the recession well and is a strong performer in middle- to upper-income communities and those near recreation areas like Lake Havasu City and snowbird havens like Yuma.

Lucas: There are very few places in the Denver market that could really use another self-storage facility. However, we just completed a study to take a look at what’s currently on the drawing boards and were amazed to learn there are 13 facilities totaling well over 1 million square feet in the development pipeline across the Front Range. This is not good news and shows we may be heading into another cycle of overbuilding in the near future.

Wilcox: Nationwide, self-storage supply is estimated at 7.3 square feet per capita. The state of Washington has an above-average supply level at 10.8 square feet per person, and while core metros are slightly overbuilt, occupancy levels are rising. With the delivery of two new facilities in 2011 (Federal Way and Issaquah) and another project in progress in Kirkland, market confidence for long-term demand remains strong.

Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self storage buyers and sellers and operates, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail .

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