The most mature self-storage market in Canada is Vancouver Lower Mainland, British Columbia, where the first facility was developed in 1975. Today, the industry is flourishing, with rents and occupancies up, cap rates down, and supply and demand in balance. A construction boom is under way, and by the end of 2006, self-storage square footage is expected to be one-third higher than in 2003.
Back in the ’70s, initial storage developments were 40,000- to 45,000-square-foot, single-story, unheated, concrete-block buildings with drive-up access and overhead garage doors. According to the first self-storage survey released in 1978, the Lower Mainland was home to six facilities with a reported vacancy of 24 percent. Compare those statistics to a survey completed in February 2005:
- The average facility size in the Lower Mainland is just shy of 60,000 square feet, ranging from 35,000 to 135,000 square feet.
- There are an estimated 95 facilities, existing or under construction.
- By the end of this year, the supply of self-storage will be more than 5 million square feet, representing 2.2 square feet per capita, based on recent B.C. population estimates.
The storage-per-capita ratio is low compared to the closest U.S. market, Seattle/Tacoma/Bellevue, Wash., which has a supply of 5.5 square feet for every resident. However, if all pending proposals move forward as scheduled in the Tri-Cities (Coquitlam, Port Coquitlam and Port Moody), Langley and North Shore, the Lower Mainland number will increase to 3 square feet per person before 2007.
When all scheduled projects are completed next year, five companies will own more than half of the Lower Mainland’s 5.4 million square feet of self-storage:
- Public Storage, the largest U.S. self-storage developer, has the biggest portfolio in the Lower Mainland, with more than 1 million square feet in 15 facilities, including one under construction in Surrey and another in the preliminary approval process in Vancouver. The company constructed two facilities in Vancouver in 2003-2004 and expanded a third.
- By the end of 2006, Maple Leaf Self-Storage, a Canadian company, will have the second-largest portfolio, with 770,000 square feet in nine facilities. With the site it opened last fall, plus the two it’s currently building and another in the approval process, Maple Leaf doubled its portfolio in three years.
- Ranking third is U-Haul International Inc., another U.S. company, which purchased the Cambridge portfolio in 2000. It has 10 Lower Mainland facilities with a net-rentable area of about 467,000 square feet.
- AAA Self-Storage Depot owns four facilities, with another under construction in North Vancouver City and a sixth planned for the District of North Vancouver. Advanced Storage Centres has four facilities. These two Canadian-owned portfolios total approximately 650,000 square feet.
Due to the cost of land, most new Canadian facilities are a minimum of two stories, commonly three or four stories in urban locations. Prices per acre run $300,000 to $500,000 in suburban locations; $1.6 million to $1.8 million on the North Shore; and $2.3 to $2.6 million in Vancouver. Although land costs may vary widely, the range of land values per square foot of building is relatively narrow, at $20 to $30.
Trends and Costs
Distinct construction trends have emerged in Lower Mainland’s self-storage projects. The most common structure is concrete tiltup with a steel frame and roof system. Most new facilities make at least a portion of their units climate-controlled.
Security systems include card- or keypad-controlled gate access, video monitoring throughout the site, card-controlled elevators, and individual-unit alarms. Though most facilities have resident managers, the newest ones don’t (with the exception of those being developed by Maple Leaf). Manager apartments are being replaced by larger office/reception and display areas.
This year, the majority of developers reported spending $55 to $62 per square foot for multistory concrete and steel. Extraordinary projects are the exception, of course. For example, now under construction in West Vancouver is a four-story facility incorporating extensive brick accents, textured concrete and glass paneling. It will feature a unique “greenroof” system (layered above the conventional roof), planted with three shades of low-lying foliage that blooms at different times of the year. The design of the foliage, viewed from above, will resemble a stream, mirroring the river to the east.
Occupancies have been steadily climbing since 2001, with all areas of the Lower Mainland reporting vacancies of less than 5 percent. Rents range from $35 per month for a 5-by-5 unit in a suburban location to $470 per month for a 10-by-30 in Richmond. One newer Vancouver location is reporting an average rental rate of $28 per square foot and 55 percent occupancy in just nine months.
Average monthly rents range from $1 per square foot in more rural locations to a reported $2.33 in a new Vancouver location. The single highest expense for facility owners is property taxes, as expense ratios run between 35 percent and 40 percent.
Cap rates, which have fallen considerably in the last three years, have meant more good news for self-storage developers. Before 2002, there were few large acquisitions, with the exception of OnGuard’s sale to Cambridge in 1990 and its subsequent purchase by U-Haul in 2000. The cap rates in each transaction were very similar, at 10 percent to 10.5 percent.
In 2002, one of the larger portfolios was marketed at a cap rate below 8 percent; it generated considerable interest but was unable to attract offers at less than 9 percent. The sales of a single facility and a four-facility portfolio in late 2004 were in the range of 8 percent to 8.5 percent. The properties were purchased by a consortium of local investors new to the industry.
The self-storage market in the Vancouver Lower Mainland has come a long way since 1975, offering continued opportunity for investors. Those interested in development should keep a close eye on existing and pending projects as well as operational and population trends in each trade area.
Candace Watson is a real estate appraiser who has specialized in self-storage for more than 25 years. Her company, Watson, Clee & Associates, does regular surveys of self-storage supply, occupancy and rents in the Lower Mainland, and prepares feasibility studies for prospective developers throughout British Columbia. Ms. Watson is also president of Canadian Self Storage Valuation Services Inc., dedicated solely to self-storage valuation. For more information, call 604.681.2929; e-mail [email protected].