42% of the top markets tracked in the US are experiencing rental rate declines due to oversupply with over 650 new facilities currently under construction and another 1000 + in planning stages according to Yardi Matrix National Self Storage Report, June 2019.
Approximately 800-850 new properties were built annually over the last 3-4 years across the US. With both ground up new developments and conversion of existing retail and warehouse boxes, developers have been aggressively building in sub-markets where demand exists. In many cases they are experiencing lease up rates as projected. We’re also seeing newly developed properties that aren’t performing as projected due to negative market influences.
Despite recent drops in interest rates along with the forecasted interest rate drop of 75 basis points by the FED by year end 2019, oversupplied self storage markets are generally transacting at the same or at higher cap rates than 2-3 years ago. Pricing has thus remained the same or has dropped. This is somewhat counter intuitive to a normal accelerating investor trend but it emphasizes the impact on transaction values from oversupply. Markets such as Charlotte, Raleigh-Durham, Dallas-Ft Worth, Houston, San Antonio, Denver, Atlanta, Tampa, Nashville and others have been cited by Yardi as over supplied markets with accompanying year over year street rate rate declines of 2.2% for standard sized climate controlled units.
Many other markets are however experiencing population growth and despite the general market oversupply there is tenant demand in many sub-market pockets which remain under served. Those under served sub-markets within larger over supplied MSAs will transact at more aggressive cap rates providing that the right buyer pool of larger operators are introduced to the properties. Larger operators will transact at higher prices if they know the available portfolio is within geographical reachable distances to their existing stores allowing for operational efficiencies and higher profitability. They will also transact if new entry into a market fits their long term investment objectives. Typically these groups are poised to use lower cost acquisition funds to support more aggressive transactional pricing.
Transacting today more than ever in the past requires full understanding of the subject property fit within the market, the local and regional market dynamics and an understanding of the right investor pool to contact to purchase your property. Contact Thomas Gustafson ([email protected] or 216.409.3186) or Matt Davis ([email protected] or 440.570.9003) today for a Market Valuation of your property or portfolio of properties. We transact in the US and internationally.