Self-Storage Operating Performance in the Primary Markets: What It May Mean for Facility Owners

By Ray Wilson Comments
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Greater barriers to entry and limited construction financing means there will only be limited new supply in the primary markets over the next 12 to 24 months. Demand, however, continues to increase as a result of the recovery in the housing market and improving employment opportunities. Both can generate a need for a household move and new demand for storage. As the economy continues to improve, so will consumer confidence, and more people will seek storage.

SSDS measures performance based on changes in asking rental rates, physical occupancy, concessions and rental income (revenue). The performance-at-a-glance table summarizes performance in the fourth quarter 2012 based on the SSDS preliminary findings on more than 7,000 facilities in the primary markets, in public and privately operated facilities.

Self-Storage Performance 4Q 2012 vs. 4Q2011***

Overall, both the REITs and non-REITs experienced improved operating performance in the fourth quarter of 2012 compared to the fourth quarter of 2011. As a result of owners being able to increase asking rental rates and physical occupancy by 2 percent, and due to a large decline in the need for owners to offer more costly concessions, the average facility’s rental income increased 5.5 percent.

By the end of the 2012, facility operating performance had returned to pre-recessionary levels in 21 of the 50 primary markets. Six markets were back to the same level of performance at the time the recession started, and 13 markets, or one-third of the country, was still operating below the third-quarter 2006 peaks.

However, the level of operating performance in the fourth quarter of 2012 was not the same for everyone. The REITs and large non-REITs experienced better performance, but that wasn’t the case for small non-REITs. Furthermore, the REITs outperformed the non-REITs in the same primary markets in each of the four regions of the county, and the large non-REITs outperformed the small non-REITs.

Self-Storage REIT Performance by Region***

Conclusions

The slow but steady economic recovery, the limited new supply, and the gradual absorption of vacant units has allowed most facilities in all the primary markets to return to their pre-recession levels of performance. Self-storage owners should continue to see improvement in performance during 2013, bearing any major economic downturn. Storage facilities in primary markets will outperform those in the rest of the country due to an ever-increasing population density, higher household incomes, better job opportunities and stricter barriers to entry.

The REITs' growth in the months ahead will be slower than what it was in 2012. While their occupancy levels are higher than those of the large non-REITs, their rental rates are also nearly 20 percent higher, giving the non-REITs a slight advantage going forward. But the REITs have a also competitive advantage, particularly over the small non-REITs, due to their superior access to technology with which to build effective revenue-management systems and their easy access to lower-cost capital for marketing. As a result, some small non-REITs will use the services of a third-party management companies to better compete with the larger operators.

Charles Ray Wilson is the founder of Self Storage Data Services Inc., an independent research firm that maintains the nation’s largest database of self-storage operating statistics. He’s an internationally recognized leader in providing independent research on the self-storage industry. He’s currently the managing director of Cushman & Wakefield Western Inc. For more information, visit www.ssdata.net.

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