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Unparalleled Momentum Pushes Self-Storage Real Estate Into Uncharted Territory

By Ben Vestal Comments
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In general, lease-up of new properties appears to be in line with the traditional two- to four-year pace, but rental rates seem to be slipping, with new properties having to offer larger than expected discounts to maintain their pace. There’s always an exception to the market, and if you’re one of the lucky developers who’s achieving faster than expected lease-up at or above your pro forma rental rates, the grass has never looked greener.

Consolidation. Though industry consolidation will continue in 2018, it’ll stem from a larger buyer pool than ever. The usual suspects, such as the real estate investment trusts and private-equity firms, will continue to dominate the larger, trophy acquisitions. However, we’ll also see more purchases from non-brand names and private real estate investors, as many take the plunge and enter the self-storage industry.

Most consolidation will come from mid-sized owner/operators because they’re willing to look at secondary and tertiary markets and buy smaller assets to grow their portfolios. The adage, “The only thing better than owning one self-storage facility is owning two or three” remains true.

Third-party management. Property-management firms continue to improve and create value for their clients. Companies like CubeSmart, Extra Space Storage and others have paved the way for third-party management by pushing revenue as well as standardizing and refining operational processes. This has allowed the industry to lead all real estate sectors in performance over the last 10 years.

These techniques, processes and capabilities have now trickled down to privately owned management firms, which provide a professional, economical product to markets and properties that haven’t previously had access to third-party platforms. This segment of the business will continue to grow and add value to the industry.

Technology. Advancements in this area have really grabbed hold in the self-storage industry over the last several years. The use of Web-based operating systems, electronic leases, mobile apps, kiosks and other automation tools, energy-efficient operating devices, and innovations from digital marketing firms will continue to allow owners to refine their operations and grow profitability through expense reduction, revenue increases and data-driven efficiencies.

2018 Outlook

The outlook for the self-storage sector remains cautiously optimistic. While the U.S. economy continues to accelerate slightly and new supply comes online, the industry should hold strong. There will undoubtedly be pockets of slowdown, but overall, the market should grow modestly in 2018. While we don’t know how long this current peak in property valuations will last, we do know that owners who take proactive measures to keep their properties competitive will be in the best position to capitalize on opportunities or protect against a potential downturn.

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. It also offers panel discussions in which brokers from around the country share their insights on self-storage market fundamentals and economic trends in their regions. To access recordings, visit www.argus-selfstorage.com/presentations.html. For more information, call 800.55.STORE; e-mail bvestal@argus-realestate.com.

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