Understanding Self-Storage Cap Rates: How to Calculate Value in Today’s Market

By Ben Vestal Comments
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As you can see, the market has seen a constant decline in cap rates for self-storage properties over the last 10 years, from an average of 10 percent in 2000 to 6.25 percent in 2013. This is largely due to the increased industry data now available that indicates the overall risk associated with owning self-storage is much less than once thought. Not to mention we have had a great run of low interest rates for the past decade that has also fueled the increase in value of almost all income-producing real estate, including self-storage.

However, the most intriguing metric in the chart is the spread between cap rates and interest rates, indicated by the red line. As you’ll notice, the trend is less constant than the more consistent cap-rate and interest-rate trends. The narrowing of the spreads between cap rates and interest rates today would indicate the market is realizing, once again, that the stability of self-storage income streams is very durable.

This review of cap rates provides you with the very basics of how they work and their effect on valuation. It should allow you to arrive at a ballpark value for your new investment or current self-storage property. However, you must be impartial when making the judgment call required regarding income and expenses, and then compare your project to other comparable sales in your market to arrive at an appropriate cap rate.

If you’re considering professional advice when evaluating a self-storage investment, it’s important to consult with a real estate professional who specializes in self-storage. Like any business, there are some things unique to this industry with which an average real estate professional may be unfamiliar, regardless of his other experience or intentions. Understanding and setting the value of a property is the single most important step in the investment process.

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 SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail bvestal@argus-realestate.com; visit www.argus-selfstorage.com.

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