Commercial real estate companies see growth in self-storage sector

A new report reveals positive outlook for self-storage industry.

After weathering a severe downturn during the recession, the self-storage sector has seen a significant comeback with expectations of future growth ahead.

Inside Self Storage reported data from Moody's Investors Service report that forecasted strong growth in the self storage sector throughout 2013 as a limited supply of new facilities contributes to rising rents powered by consumer demand. Given the volatility of the market throughout the last 6 months, self-storage lends itself nicely to sharp changes. It's short term leases gives the industry a degree of versatility over other segments. In addition, a wide customer base mitigates risks that any single factor undermines growth, according to Moody's officials.

"The industry's underlying dynamics will likely be strong for the next three to five years," said Alice Chung, an analyst at Moody's. "The sector is benefiting from two factors: short-term leases and a diverse customer base. And it also has a low break-even rate, which boosts profitability."

Also, more businesses are utilizing self-storage to accommodate their inventories and equipment, as well as "echo-boomers," and is giving added rent stability to the industry.

"Moreover, compared with other real estate asset classes, the self-storage companies fared well during the Great Recession of 2008  and 2009, proving that they can weather economic troubles," Chung added.

Company spotlight
As outlined by Moody's, the self-storage real estate investment trusts are outperforming independently owned facilities due to their leveraging power and ability to outsource commercial property management solutions. CubeSmart, a self-storage REIT that owns and manages 517 self-storage facilities in the U.S., is doing well. According to Christopher Marr, the president of CubeSmart, gains in consumer confidence, employment and housing are contributing forces toward self-storage's strong growth. It's stocks, which dipped to $1.35 during the recession, have rebounded to $16.92 a share, as reported by Inside Self Storage.

In a strange turn of events, oversupply was threatening the sectors profitability. However, the recession curbed additional construction and conversions, limiting supply. CubeSmart's utilization rate, as a result, jumped to 84.4 percent in 2012, up from 78.4 percent in 2011. According to Moody's, the industry will continue to benefit from consolidation. CubeSmart is already the 4th largest self-storage company in the U.S., and will likely continue on that trend. However, new acquisitions will most likely occur at a conservative pace.

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