The new year has brought a feeling of cautious optimism to the self-storage investment market. What remains to be seen is how the uncertain debt markets and a return to more historical performance levels will impact self-storage valuations in the coming year. Click below to read more about the outlook for 2024!
We have finally reached the end of the roller coaster ride that was 2023. This month, Ben Vestal shares what we learned this year and how the self-storage investment market is shaping up for 2024. We wish you all the best this holiday season!
This time of year, we find ourselves reflecting on the things we are most grateful for and the people that mean the most to us. Argus Self-Storage Advisors is made up of more than 500+ self-storage professionals across our management and investment sales platforms who have been helping our friends, colleagues and clients navigate the self-storage management and investment market for the last 29 years.
The uncertainty of the real estate markets has many self-storage investors wondering when the music is going to stop, bringing an end to the high prices and available financing that we have enjoyed in recent years. This month, Ben Vestal examines the causes of this recent market turmoil and offers advice to self-storage owners and investors on which “chair” might be the best option for you to protect and maximize your value.
Recent market turmoil has many self-storage investors questioning how values are being calculated today. In this Market Monitor, Ben Vestal explains what factors are driving values today and how the profile of the buyer can dramatically impact the market value. Click below to read more about the nuances of valuation in the current self-storage market.
Public Storage, a leading provider of self-storage solutions, recently announced its $2.2B acquisition of Simply Self Storage from Blackstone. The deal, which was finalized this month, marked a significant milestone for both companies and has far-reaching implications for the ever-expanding self-storage market. This deal is a counter punch to the $11B Extra Space acquisition of Life Storage announced earlier this year. With this strategic purchase of Simply Self Storage, Public Storage continues to solidify its position as a dominant player in the sector, allowing it to tap into new markets and broaden its customer base within the Simply Self Storage portfolio. This deal is no surprise to self-storage professionals; the self-storage industry remains a strong segment within the real estate investment market and the acquisition of Simply Self Storage may just be the beginning of Public Storage’s continued consolidation of large industry participants.
Change and uncertainty go hand in hand, whether it’s looming inflation or the impact of rising interest rates, the stability of the economy is in question and creating uncertainty. Today, many are adopting a “wait and see” policy when it comes to evaluating the market for self-storage investments. We know that the three biggest risks to your self-storage value and the overall industry are interest rates, cap rates and overbuilding. These risks have been looming in the background for years, but as our economy will inevitably change, so too is the likelihood that these risks will have a meaningful impact on the value of your investment.
As we approach the midpoint of 2023, self-storage investing continues to be a very compelling opportunity, offering attractive returns and a steady income stream. Self-storage investments have gained popularity due to their resilience in economic downturns and the public’s continued demand for storage space. It is clear that as the overall economy and capital markets continue to be volatile, the self-storage investment market may be bumpier that we once thought. However, performance remains strong.
Over the last two months the industry has gathered at two national self-storage meetings and in my 20-year career I have never seen a market that is more unsure of the direction it is heading. The self storage market is a classic tale of two cities. There are both headwinds and tailwinds, making it challenging to predict the future. Below I have outlined some self-storage trends to help you identify your next opportunity.
The uncertainty of the financial markets over the last 30 days has had everyone on pins and needles waiting for the next shoe to drop, and it is clear that the recent bank failures have yet to fully work their way through the system, and may only be the tip of the iceberg. One certainty is that the value of self-storage properties is changing as equity providers and investors are looking for appropriate risk-adjusted returns and safe havens. The main take away from our most recent market participation is that there are still very willing buyers in the market, but the question is whether they are REAL and ABLE to execute.
While the last few years have been very good for the self-storage industry, the most positive and productive result of the contracting economy and return of seasonality over the last 6-9 months is that it has forced operators to take a very hard look at their operating expenses, leasing velocity, and move out trends. The slowdown in leasing velocity and declining rental rates have forced many operators to change their marketing campaigns, embrace revenue management, and move outside their comfort zone as this market continues to evolve. Today’s savvy self-storage owner/operators must familiarize themselves with a variety of online marketing and revenue management techniques such as geofencing, upstream clicks, social media, negative churn, tenant acquisition costs, algorithm-based pricing models, pay by text, and length of tenancy, just to name a few. Gone are the days of simply “having a website” and rolling out street rate adjustments and existing customer rate increases annually or semiannually. Not only are self-storage owner/operators finding better and cheaper ways to communicate with their customers, but customers are choosing to receive information and make rental decisions in a more convenient way as well.
As we enter 2023, it is clear that investor sentiment towards self-storage continues to be very bullish. Economists, on the other hand, prognosticate that rising interest rates, inflation and overall economic concerns continue to teeter on recessionary levels. Today stabilized assets are continuing to command very aggressive valuations and undermanaged deals are the golden ticket that everyone is searching for, while lease up and C of O deals are regaining momentum and pricing power. This reinforces that once again self-storage will emerge from a market disruption as the shining star of commercial real estate, largely driven by current self-storage market fundamentals and risk-adjusted rates of return compared to other asset classes along with self-storage’s low capital expenditures.
- I-2024: Cautious Optimism Leads the Way!
- XII-2023: Where Are We Headed in 2024?
- XI-2023: Three Things to be Thankful For