By Candace Watson
Although the Canadian self-storage market has grown steadily over the past decade, investors and operators continue to face a number of challenges, including site selection, rising land and construction costs, and taxes. This article takes a closer look at the real estate market in British Columbia, examining supply and demand, rental and occupancy rates, acquisitions, and new construction.
Supply and Demand
The self-storage market in Vancouver Lower Mainland just experienced four years of very limited new supply, and it appears 2013 will continue this trend. With the exception of a 100,000-square-foot conversion in South Vancouver and the April 2012 completion of a 90,000-square-foot facility in Abbotsford, new facilities have been developed with first phases of only 40,000 square feet or less. Several existing facilities have completed small expansions.
The outlook for 2013 includes the completion of a 42,500-square-foot final phase to a facility in Langley. Other projects that may be under way include the expansion of a facility in New Westminster, a possible new facility in Mission, and potential new facilities near the Canada/U.S border crossings in Surrey and Abbotsford.
The supply in the Lower Mainland, including Abbotsford and Chilliwack, is estimated at just over 6.3 million square feet in 112 facilities with an average size of 55,000 square feet, or approximately 2.37 square feet per capita. The range in the various submarkets ranges from a low of 1.2 square feet to a high of 3.5 square feet per capita.
The Capital Regional District (Victoria) lost one facility to redevelopment, reducing the supply to 672,000 square feet in 23 facilities, with an average size of 29,233 square feet. The estimated supply per capita is just under 2 square feet per capita.
It’s difficult to generalize about rents because of market variations. In areas where the supply is in balance and occupancies are stable, new tenants have received regular rent increases. Increases appear to average 3 percent annually in these markets. Several markets in the Lower Mainland have become very competitive over the past few years due to new supply and, in one particular submarket, no rent increases have been possible for four years.
The harmonized sales tax (HST), which combined the provincial sales tax and the federal Goods and Services Tax (GST), is to be removed in British Columbia in April 2013. Before the combination of the two taxes, self-storage was exempt from provincial sales tax, which means if this exemption is retained, as the government has assured industry representatives, storage rents will once again be exempt from the 7 percent sales tax. Operators will have the option of passing this savings on to tenants or leaving rents as they are.
The Lower Mainland facility with the highest rents lowered rates on select unit sizes in 2011 due to a dip in occupancy. But it raised rents again this year and is reflecting an overall average rent per square foot of $3.29 per month.