It’s well known in the commercial real estate industry that many sectors are benefiting from a lack of new development. This absence of new supply is driving up both acquisition prices and occupancy rates across several property types.
The self-storage arena is one of those areas currently benefiting. First-quarter financial results of all four REITs in this commercial real estate sector, CubeSmart, Extra Space Storage, Public Storage and Sovran Self Storage, were all favorable, as summarized by an MJ Partners self-storage overview.
All four REITs saw NOI and revenue growth during this period, with Sovran and its 487 units under the Uncle Bob’s brand leading the pack with an NOI increase of 9.3 percent year over year and a 8.3 percent revenue boost.
Meanwhile, Public Storage and its 2,200 units boasted the highest occupancy rate, at 92.6 percent, up from 91.9 percent during last year’s first quarter. Public Storage’s implied cap rates, based on common share prices, are at 4.3 percent, MJ Partners reported.
In the last 12 months, cap rates have fallen 100 basis points in the sector, mainly due to a lack of new development, said MJ Partners Principle Marc Boorstein, in an interview with GlobeSt.com; “And we thought the rates were aggressive 12 months ago. But there’s still not a lot of new development in the business.”
In another GlobeSt.com article, Marcus & Millichap’s Roberto Munoz says that office and industrial REITs are eyeing self-storage assets because of the high returns they provide. Like single-tenant retail structures, part of the attraction to self storage is that it’s a low-maintenance investment.
Meanwhile, development in the sector might be heating up. This Inside Self Storage video cites a Marcus & Millichap report that new construction doubled from 2012 to 2013. Areas in Texas and the Denver MSA are especially hot for development.