Any business venture is a gamble, but Las Vegas has become a very good bet for self-storage owners and an increasing number of investors looking to jump into the Nevada market. Though the state’s largest metropolitan area has seen a substantial uptick in new development in recent years, it hasn’t experienced major price volatility.
Population and Pricing
Unlike other cities that have endured price unpredictability as a result of new facilities coming online, Vegas has a growing population that has kept self-storage demand strong. “It’s been a great market,” says Cory Sylvester, a principal at Radius+, a company that specializes in self-storage data, analytics and location intelligence. “Las Vegas has been a big beneficiary of net migration, a lot of it coming from California.”
While the population increase is certainly due in part to California residents seeking more affordable housing, other neighboring states may also be at play. The Las Vegas population has increased by about 14% over the past 10 years to approximately 667,500 people, according to U.S. Census data. The population of Henderson, just south of the metro, has grown an eye-popping 32% since 2010 to about 341,500.
Interestingly, Sin City isn’t the only metro booming in Nevada. Reno, the state’s third largest city, has also seen its population spike (about 18%) in the last 10 years to about 266,500 people. New residents are finding their way there from California and other locales in search for a better tax situation and cost of living. Nevada doesn’t have a state income tax.
The good news for self-storage owners and investors is many of these new residents have storage needs. Rental rates are hovering around $1.30 per square foot. That isn’t to say there hasn’t been some price instability. Rates for climate-controlled spaces fell from around $2.30 per square foot in early July to $1.79 per square foot in early August. Still, prices are way up from the pre-pandemic average of around $1.20. Meanwhile, the average occupancy rate has continued to hover at around 95%.
“Las Vegas is a very dynamic market,” says Gary Free, president and CEO of Towne Self Storage, which operates seven facilities in the Las Vegas area, in addition to another 20 in Utah and Arizona. “Things got a little difficult during the pandemic last year, but currently we’re doing quite well. Rents have been going up.”
More Supply on the Way
The influx of population in Las Vegas has also triggered a need for more self-storage space. With 276 facilities and 17.9 million square feet, the Las Vegas-Henderson-Paradise region has a penetration rate of 8.3 square feet per person, just a little higher than the national average, according to Radius+.
There are 29 facilities in the development pipeline, which are expected to increase available supply by 12.4%. While that’s a large number, the area should be able to absorb the growth. “People know it’s a healthy market, and that’s why it’s attracting investors,” says Sylvester.
“There’s a lot of building going on [in Northern Nevada], but it isn’t overbuilding,” notes Todd Whear, owner of Stor-All, which operates five facilities in the region. “It’s needed construction due to high demand. It’s all demand driven.” Stor-All is adding 35,000 square feet at two of its facilities as a result of the strong demand, he adds.
All segments of commercial real estate in Las Vegas, not just self-storage, seem to be doing well these days, according to Free, which means it’s important for investors to do proper research if they’re going to succeed in the region. Risk factors include the state of the still-fragile national economy, inflation and the potential for overbuilding. “You have to be very careful because it’s easy for an area to get overbuilt,” notes Free. “But we’re pretty happy right now.”
Though overbuilding should always be a concern, the growing demand for space in the region means new construction shouldn’t be a problem as long as rate trends continue. “Oversaturation is the only thing I worry about,” says Steve Kramer, president of the Nevada Self Storage Association.
The bottom line is the Las Vegas area is considered a very healthy self-storage market in the long run.
Monty Spencer is CEO of The Storage Acquisition Group, which specializes in acquiring off-market self-storage facilities and portfolios nationwide. The company also offers market-analysis reports, underwriting and closing support. For more information, call 757.867.8777.