Is Self-Storage Overbuilt?
LEHI, UT, June 20, 2019 —
Self-storage has been on a tear for years. With above-average returns and a recession-resistant business model, it's no wonder why more and more investors and developers are turning their attention to self-storage.
With so much optimism surrounding this niche market, developers are flooding the scene trying to make use of any under-served markets. However, market fundamentals are inevitable. Operators are reporting a depression in rents at some of their facilities.
For example, net operating incomes for the top five REITs this year reported 1-4% growth, compared to 4-8% growth less than 10 years ago. Although operators are likely to maintain similar occupancy rates, rent suppression will occur as owners turn to aggressive discounting to keep new competition at bay.
All things considered, self-storage is a micro-market product; i.e., a market can appear seemingly crowded, but sub-markets often have pockets that are ripe for development, especially in secondary and tertiary markets.
For this reason, there are still hundreds of self-storage projects expected to come online well into 2020. Further details can be found in this article from the National Real Estate Investor.
Greenscape Development Partners is well aware of oversupply risk, which is why we focus so much on under-supplied 3- and 5-mile pockets within secondary and tertiary markets where development has been overlooked. Creativity in this stage of the market cycle is also key, which is why we focus on adaptive reuse, in addition to exceptional ground-up development opportunities.
Follow our progress on GDP's exciting redevelopment taking place in downtown Kansas City here.