Commercial real estate companies flock to high-performing self storage

Population density, not household income, now leads record-high occupancy levels for the self storage sector.

In an industry that has been experiencing a slow but steady recovery, property management companies have found a resilient gem in the self storage sector. 

The National Real Estate Investor reported strong increases in rent levels and occupancy rates, driving some real estate investment trusts to spend more on development and acquisitions of new properties. Anxious investors, aware of the strong performance of the self storage market, are openly competing with REITs.

"Private equity wants into self storage, they've outbid the public companies on a number of portfolio deals in the past year," Marc Boorstein, a principal at MJ Partners, told NREI. "Last year, the public companies spent $1.5 billion on acquisitions, and this year will be much less because of the competition."

Of the 50,000 self storage assets in the U.S., REITs only control an estimated 10 percent. However, those REITs are reporting an outstanding 90 percent occupancy rate.

"In an industry that sees about 7 percent turnover every year, it used to be 85 percent was considered fully occupied," said Boorstein. "The length of stay keeps getting longer, and thus the industry has been able to boost rents by up to 8 percent. If someone's paying $150 a month, they'll do $160 a month, add that over tens of thousands of units and you've got a material impact on revenue."

Recent expansion resulting from strong performance
Public Storage, a self storage REIT boasting a portfolio of more than 2,000 assets, recently opened a 12-story facility in Bronx, N.Y. With more than 4,000 storage units, the Bronx facility is the largest facility in Public Storage's spread.

"Growing demand for smaller-sized units at our other locations throughout greater [New York City] has led us to build this facility to meet the specific needs of local customers," David Doll, senior vice president of Public Storage, told Inside Self Storage. "Not only does our Gerard facility offer the right kind of storage at the right price, its easy access and free parking make it a convenient choice for the 687,000 New Yorkers who live within two miles of the property."

According to Boorstein, self storage REITs are focusing on well-populated areas, as more Millennials flock to urbanized settings. He said that household income used to determine areas of growth, but that dense areas of population now lead the market, as reported by NREI.

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