CREJ - Office & Industrial Quarterly - December 2023
As the year begins to wind down and we are approaching 2024, I reflect on what 2023 has brought the self-storage real estate industry both nationally and in Colorado.
Nationally, over the span of the last five years, self-storage has grown to more than a total of 1.8 billion square feet of space as of 2023. Also in the last five years, 260.4 million square feet of storage space was built – that's equivalent to 14.8% of the total inventory, according to Storage Cafe. However, despite this, it cannot be ignored that developers and investors in the self-storage industry are still facing headwinds causing volatility in the market such as higher interest rates, higher costs of construction, and the apparent disconnect between buyers and sellers.
Given the headwinds faced in the market today, self-storage transactions are down significantly year over year, by approximately 57% (according to a national commercial real estate firm), but self-storage continues to be one of the most desired investment asset classes. Investors in the market continue to look at this asset class as resilient to inflation due to the typically standard month-to-month leases versus longer leases that are preferred in other commercial real estate asset classes. Buyers are being more selective than ever, but we are starting to see the buyer pool change with an influx of additional high net worth individuals, family offices, funds, and now multifamily groups entering the market. In having conversations with some of these multifamily groups that are entering the market at the Self-Storage Association’s fall convention in Las Vegas, we realized that their attraction to the self-storage asset class is due to wanting to diversify their portfolio and find buying opportunities with higher cap rates than they are seeing within the multifamily asset class. Generally, we are seeing cap rates associated with self-storage transactions at 75-110 basis points higher than a year ago.
In 2023, we have begun to see some sellers adjust and lower their expectations due to rapid increase in interest rates that we have seen since 2022. However, more commonly, we see sellers hold firm on their expectations or simply object to selling due to not feeling like there are better opportunities where they can place their capital and generate a similar or greater return.
The average rent for a standard 10’ x 10’ storage unit across the U.S. is $126 on a monthly basis, according to StorageCafe. This is down 3.8% year-over-year. In Denver, the average cost of a standard 10’x10’ storage unit is $135 on a monthly basis. This is down 2.9% year-over-year. Climate-controlled 10’x10’ units are averaging about $141 monthly across the United States. Also, according to StorageCafe, Greeley, Colorado is ranked 7th out of the top 20 fastest growing cities based upon street rates. According to the same report, Greeley has seen a year-over-year increase of approximately 12.5%. At the top of the list is Cartersville, GA with a year-over-year change of approximately 31.9%.
Even though we are facing what seems to be continuing headwinds, deals are still getting done; however, they are taking longer and often require a more creative approach.
To that end, myself, and the remainder of the Nunez Self Storage Group, that is a part of the NAI Global platform, are here to provide our professional expertise and assist in valuations and transactions. Since the formation of the Nunez Self Storage Group that was initiated by Denise Nunez with NAI Horizon earlier this year, we have gained team members from Colorado, Seattle, California, and Arizona and will continue to expand the team with expert sales professionals within the NAI Global network in multiple different locations throughout the US.
"Headwinds Aside, Self-Storage Deals Are Happening", written by: Lauren Larsen, Advisor, NAI Affinity
Source: CREJ - Office & Industrial Quarterly - December 2023, pg. 25