Rents in the urban municipalities range from $1.78 to $3.29 per square foot per month, with smaller average unit sizes of 56 to 75 square feet. The current rent range in suburban Lower Mainland locations is $1.33 to $2.02 per square foot per month, with larger average unit sizes of 92 to 124 square feet. These are estimated average rental rates based on current list rents and actual unit mix.
Occupancy levels in the stable Lower Mainland markets have improved significantly, to the high 80s and low 90s, almost back to pre-recession levels. The strengthening is believed to be the result of limited new supply and increased confidence in the economy. However, the housing market has softened significantly in the past few months, with an immediate impact reported in the self-storage industry. The effect appears to be in the lack of activity rather than falling occupancies.
The Victoria market is more volatile than those of the Lower Mainland. Occupancies dropped in 2010 but have since strengthened. The Nanaimo market has recovered from the addition of a large new facility in 2010. Established facilities are reporting occupancies in the high 80s to low 90s. The newest facility is leasing at just under 2 percent per month.
However, some larger facilities that were built close to competitors between 2004 and 2008 are still struggling to lease up. These are in Vancouver, Port Coquitlam and the North Shore. In two instances, lease-up has flat-lined in the 50 percent to 60 percent range. Some lease-up is being achieved through significant discounting, which has caused as much as a 17 percent difference between physical and economic occupancy.
With a few exceptions, the lease-up of new facilities has slowed significantly. Facilities are now requiring at least three years to reach stabilization; five to six years is not uncommon for large sites.
Acquisitions and Sales
This year two smaller facilities were sold in the B.C. interior, one in Salmon arm, at an approximate 8 percent capitalization (cap) rate, and the other in Kamloops at an estimated 8.5 percent cap rate. A portfolio of three Lower Mainland properties was sold in February.
The two stabilized properties in the Lower Mainland portfolio sold for cap rates in the range of 6 percent to 6.6 percent on actual income, and 6.5 percent to 6.6 percent based on stabilized net income. The third property was approximately 60 percent leased at the time of sale. Based on actual income of the three properties, the overall rate of return was in the 5.4 percent range. The sale prices ranged from $173 to $221 per square foot of net rentable area.
To my knowledge, there has been one recent land transaction, the April 2012 sale of land and a building intended for conversion. The price for just over one acre of land and a building with a reported gross area of 25,000 to 27,000 square feet was $3.5 million. The site, in New Westminster, was purchased by the owner of the adjacent self-storage facility to accommodate expansion.
The most recent pure land sale was the resale of a site in Abbotsford in April 2011 at $3 million. It was a 2.25-acre site including plans and permits. A 90,000-square-foot facility was completed and opened in April 2012.
While the industry remains sensitive to the ups and downs of the housing market, occupancies have strengthened largely as a result of very limited new supply. The outlook for 2013 is cautiously optimistic, with stable occupancies in most markets, stable or rising rents, limited additions to the supply, and no change in cap rates unless interest rates start to rise.
Candace Watson is the principal of Canadian Self-Storage Valuation Services Inc., which offers appraisals and feasibility analyses to owners and developers in Canada. She has more than 30 years of experience as a professional appraiser and has appraised more than 40 percent of the current supply in the Lower Mainland. To reach her, call 604.681.2929; e-mail firstname.lastname@example.org ; visit www.cssvs.ca .