The Canadian self-storage industry experienced a year of significant growth despite several challenges. The biggest self-storage news item one year ago was the formation of InStorage REIT, the first Canadian real estate investment trust focused on the acquisition of self-storage. In one year (August 2006 to August 2007), InStorage moved to first place in Canada in holdings of self-storage. The REIT closed on 52 stabilized properties or approximately 3 million square feet of net rentable area.

Public Storage, which has 48 locations across Canada, has been relatively active in the past year, including the purchase of a 35,000-square-foot facility comprising 300 units in Woodstock, Ontario, in May ’07. The property has additional expansion potential of 20,000 square feet or approximately 270 units. Two new facilities were opened in June 2007: an 84,000-square-foot, 947-unit four-story building in Laval, Quebec, and an 86,000-square-foot, 962-unit property in Scarborough, Ontario. In September, the company purchased 1.8 acres in Laval, Quebec (at $412,000 per acre) for the development of self-storage, and in December, the company acquired 3.3 acres in Richmond, Ontario, for $1.03 million per acre.

Since August of 2006, the Depotium portfolio in Quebec has expanded by 11 facilities to a total of 18 self-storage properties, the majority of which are on the Island of Montreal. Due to the scarcity of land in Montreal, all the Depotium facilities in the city have been developed in buildings converted to self-storage from industrial or service commercial uses. However, a new multi-level facility was opened in 2007 near Joliette in Notre-Dames-des-Prairies, and new multi-story buildings have been added to existing facilities in Montreal East and Longueuil. There are approximately 7,600 units under the Depotium brand.

Individual Markets in British Columbia

The supply of self-storage in the Vancouver Lower Mainland will reach 5.8 million square feet by the end of 2008, or about 2.4 square feet per capita. Approximately 480,000 square feet of self-storage will be added in 2008 in six new facilities and expansions to existing facilities. Two of the expansions comprise the addition of portable units rather than new construction because of rising costs. The current estimated average facility size is 55,000 square feet. An estimated 420,000 square feet was added to the supply in 2007 in four new facilities and two expansions.

Rents are stable in most areas, and portfolio managers report that rent increases are planned for spring or mid-year in most sub-markets. The range in rents is $19.80 per square foot per annum in rural areas to $34 per square foot in Vancouver. Occupancies appear to have softened somewhat from 95 percent-plus to the low 90 percent excluding facilities in lease-up.

Absorption of new facilities has slowed and significant promotions are being offered at new facilities, which are being matched by the closest competition. There have been no sales other than one small facility that sold twice in 2007.

In the Capital Regional District (Victoria), no new supply was added in 2007, although a facility of approximately 29,000 square feet was opened in Central Saanich last February. The current supply is estimated at less than two square feet per capita and comprises approximately 640,000 square feet in 20 facilities. The average facility size is 32,000 square feet.

Rents were increased significantly in the trade area in 2007, following the lead of the two facilities that entered the market in 2006. The last survey was made in May 2007, and the range in rents was from $17.88 to $22.56 per square foot.

Total supply of storage in the Nanaimo Trade Area is 317,000 square feet in 14 facilities, or approximately 4 square feet per capita based on the population of Nanaimo City or 2.14 square feet per capita based on the regional trading area population. The average facility size is 22,647 square feet. The inventory of self-storage includes a large proportion of container storage (13.5 percent of the supply) as well as first-generation older developments.

Rents in Nanaimo are significantly lower than those of either Victoria or the Vancouver Lower Mainland, ranging from $9.36 to $16.20 per square foot per annum. High occupancies of 95 percent or more were recorded when the trade area was surveyed in May and September 2007.

Overview of the British Columbia Market

The effect of the tightening of financing is to slow development in the B.C. region. Developers seeking financing are faced with higher equity requirements, more stringent qualification requirements, higher interest rates and higher fees.

In the past year, the B.C. market has been characterized by very few sales except for three sales of smaller facilities in smaller towns, and one sale of a smaller suburban Lower Mainland facility that changed hands twice in 2007. A four-property portfolio was tied up for eight months, but the prospective purchaser recently decided not to complete the transaction.

High land prices and rising construction costs are resulting in developers having difficulty making the numbers work on new projects in urban areas. Three developments have been dropped because of high costs, and one large expansion to an existing facility has been deferred. However, rents are still stable or rising in most markets.

Overview of the Alberta Market

There has been significant sales activity in the Calgary trade area in 2007, including the REIT purchase of three facilities in Calgary, as well as one in Okotoks and another in Airdrie. Overall supply is still estimated at approximately 2 square feet per capita.

Maple Leaf Self Storage reports the leasing performance of its two new facilities is on track. Each site offers more than 125,000 square feet of net rentable area (1,300 units) in a multi-story configuration with full climate control. One of the facilities opened in December 2006, the second in May 2007.

Multi-story development is new to the Calgary trade area, and education-oriented advertising has been necessary. Actual absorption is estimated at approximately 2 percent per month.

There was also considerable sales activity in Edmonton in 2007, including the sale of one former StorageMaxx location to InStorage REIT; the sale of a smaller facility to a local investor; and the recent sale of the largest facility, Storage King, (133,600 square feet of net rentable area plus 4 acres of land used for RV storage) to a B.C. investor.

The area is experiencing significant self-storage development interest with several sizeable developments in the planning process. Industrial land prices have doubled in the past few years from a range of $350,000 to $375,000 per acre to $600,000 to $700,000 per acre.

There is potential for movement in rents, which are at lower levels than Calgary and significantly lower than those of Vancouver. Occupancies were very high in most facilities when the trade area was surveyed in November 2007.

Storage Strong Despite Challenges

The Western Canadian market has been affected by the sub-prime mortgage meltdown in the United States. The most significant effect has been the tightening of financing for self-storage. This has slowed development and is creating problems for developers in addition to rising land and construction costs.

More than ever before, it is crucial that prospective developers with limited experience in self-storage do their homework and investigate the market thoroughly when putting together financial pro formas and projecting future performance.

On the positive side, there are now considerable resources “made-in-Canada” to assist new developers and investors in evaluating opportunities in the Canadian markets. The growing list includes brokers who specialize in the marketing of self-storage; appraisers who specialize in the valuation and feasibility analysis of self-storage; management companies who train personnel and offer management services to the self-storage industry; construction companies and engineers with extensive experience in self-storage development; and insurance brokers with self-storage focus.

The market of today is not the market of six months ago—deals are harder to make and financing is more difficult to arrange. However, self-storage will continue to be an excellent investment opportunity and there are significant development prospects in the majority of Western Canadian markets.

Candace Watson is a professional real estate appraiser who has been appraising self-storage for 30 years. Her company, Canadian Self Storage Valuation Services Inc., specializes in the valuation and feasibility analysis of self-storage, and conducts regular surveys of supply, occupancy and rents in the Vancouver Lower Mainland and Victoria, as well as in several Alberta urban centers. In 2007, the company provided valuation services in Winnipeg, Regina and Montreal in addition to Western Canada. For more information, call 604.681.2929; e-mail [email protected].