When there’s a strong multifamily market and a home-buying environment that is challenging in many cities, it makes sense that the self-storage sector of commercial real estate is going to be strong. After all, if there is a situation where an individual or family must downsize, or is in transition, they need a place to put their stuff.

And by most accounts, self-storage has performed very well fundamentally for quite a while now.

It still is, but as recent Cushman & Wakefield report (download here) on the property type displays some caution. The commercial real estate services firm recently released a fourth-quarter survey that says there might be some excess supply on the market which could negatively impact vacancy and capitalization-rate trends.

“Buyers and lenders continue to recognize the risk of new supply entering the market and are more conservative in their underwriting where there is a significant potential for new supply,” the report says.

Meanwhile, CBRE, in a report that focuses on the overall commercial real estate market for 2020, says that there were “modest rent declines” last year due to some oversupply.

Since this sector of commercial real estate is so fragmented in ownership, it’s difficult to find strong data on self-storage fundamentals as a whole.

Luckily, there are some major public REITS that are leaders in the industry that have available numbers.

Public Storage, the largest of them all, with about 2,500 assets across the country, doesn’t seem to be having much trouble lately. Its stock was trading about around $230 per share as of mid-February and has risen as of late. Though Public Storage didn’t have it’s fourth-quarter results available at the time, things looked pretty good during the REIT’s third quarter.

Occupancy was at 94.2 percent, up from 93.8 percent during the same quarter in 2018. Net income came in at $377.4 million, an increase from $322.7 million during the prior year-ago period.

However, Cushman warns that average expense rates in the operation of self-storage are getting more challenging. Expense growth is about 60 basis points over rent growth, depending on the property class. Despite that, cap rates will probably continue to decrease, due to the amount of cash looking for deals.

If a decline in new construction persists through 2020, as Cushman predicts, vacancy rates will likely compress. If overbuilding doesn’t occur, as with nearly every commercial real estate product, problems will arrive. But the ups and downs of the single-family housing market will likely make sure that commercial real estate’s self-storage sector will remain viable.

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