Despite recent volatility in interest rates, investors remain confident in the self-storage market, according to a business brief released by the Valuation & Advisory Division of commercial real estate firm Cushman & Wakefield (C&W). The impact of recent, significant increases in 10-Year Treasuries also indicates capitalization (cap) rates will remain flat until the bond market stabilizes, but over the long run, the rapid compression in self-storage cap rates is likely to flatten and stabilize, C&W analysts said. The brief, titled Moving With Confidence in Self-Storage, can be downloaded for free on the Inside Self-Storage website.
In addition to discussing interest-rate volatility, the eight-page report summarizes data from the Summer 2013 PwC (PricewaterhouseCoopers) Real Estate Investor Survey, for the domestic self-storage market. It also includes the results of an expanded survey, which examines market optimism, absorption time and other elements that characterize the current market conditions for the self-storage asset class.
Operationally, the sector remains robust. Year-over-year results from the first-quarter 2013 show increases of 3.1 percent for physical occupancy and 4.8 percent for rental income, according to the brief, citing data from C&Ws larger Self-Storage Performance Quarterly (SSPQ) report. SSPQ reports are sold in partnership with the Inside Self-Storage Store, an e-commerce website providing on-demand insight and education products for self-storage professionals. Each quarter the SSPQ report contains income and operational performance data from more than 7,000 facilities in the nation's 50 largest Metropolitan Statistical Areas.
Although new-construction projects are low historically, new builds were up 4 percent from the previous quarter and 125 percent year over year. Most large operators and a handful of regional operators have started actively searching for new development opportunities in most major metropolitan areas, according to the brief. The robust growth in rental rates and occupancies combined with the small amount of new construction in the pipeline are fueling this new construction growth.
Industry consolidation also has increased, with the number of acquisitions in 2012 increasing 20 percent from 2011. In total, 41 percent of all self-storage acquisitions in the last two years involved portfolios, C&W said. In the last three years, portfolio transactions exceeded $2.5 billion, according to the brief.
Looking ahead, confidence in the fundamental strength and sustainability of cash flow is forecast for self-storage, C&W analysts said.
Cushman & Wakefield advises and represents clients on all aspects of property occupancy and investment. The firm's Valuation & Advisory Division, which includes the Self Storage Industry Group, is one of the largest real estate valuation and consulting organizations in the world. Founded in 1917, the company has 253 offices in 60 countries and more than 14,000 employees. It offers a complete range of services for all property types including leasing, sales and acquisitions, debt and equity financing, investment banking, corporate services, property management, facilities management, project management, consulting and appraisal.