Integra Realty Resources Inc. (IRR), a commercial real estate valuation and consulting firm, has released its IRR Viewpoint 2014, an annual report providing data, analysis and forecasts on local and national market conditions for self-storage and seven other U.S. commercial real estate sectors: debt capital markets, office, multi-family, retail, industrial, lodging and senior housing. This years report forecasts increases in self-storage property values and the number of new development projects during the next few years.
Across most commercial sectors, real estate values are expected to rise during the next three years, according to the report. Improved property fundamentals will drive the upward trend in real estate values, and they are likely to offset any potential increases in cap rates during this period, IRR officials said in a press release. The strong recovery of property fundamentals has already established the real estate sector as a safe harbor for investors in search of yield in the current low-interest-rate environment. These dynamics will add to favorable value appreciation during the next three years.
In the self-storage market, cap rates have dropped to near-record lows during the past two years due to a reduction in the number of properties for sale, IRR analysts said. This, combined with income growth and lower overall rates, has storage values increasing, with that trend expected to continue this year, according to the report.
IRR also credits the four publicly traded, U.S.-based self-storage real estate investment trustsCubeSmart, Extra Space Storage Inc., Public Storage Inc. and Sovran Self Storage Inc.with exhibiting materially positive absorption last year. This has allowed the industry to decrease the amount of promotional discounts and concessions, further enhancing revenue potential within the sector, IRR analysts said. Occupancy is expected to stabilize as operators continue to push rental rates higher.
Favorable cap rates, income growth and lower overall rates will likely continue to result in increased self-storage values, according to IRR. Market conditions in many areas also indicate that new self-storage construction will increase in the coming years, company analysts said.
Now in its 24th year, the IRR Viewpoint includes a forecast section dedicated to forward-looking analysis and commentary on commercial real estate markets and property types. With Viewpoint 2014, we have expanded the report to include a forecasting section intended to help our clients prepare for potential opportunities and risks within the commercial real estate sector, said John Albrecht, CEO. We have also broadened the scope of our survey and research to include class-B property metrics.
Founded in 1999, IRR is headquartered in New York City and operates 66 offices throughout the United States and the Caribbean. The firm specializes in real estate appraisals, feasibility and market studies, expert testimony and related property-consulting services.