Self-storage receives boost during down times
In the high tide of residential development, Minker and Trahant Associates President Tyler Trahant said many self-storage units were filled by families who were waiting to build a new home and in need of temporary storage during construction.
These days, that’s no longer the case.
In today’s recession, Trahant said self-storage properties are seeing more business from families downsizing from larger homes – and often times, those customers are on a strict budget.
“Occupancy rates we’re seeing have been relatively steady even though people are using storage differently today, so one is offsetting the other,” Trahant said. “But where you’re seeing the difference is in rents.”
Trahant said he is hearing self-storage property owners say they are forced to offer lower rents with more concessions to draw in those with tightening budgets who are shopping for better deals.
The Self Storage Association, a nonprofit trade group, estimates that since the onset of the recession, national occupancies at storage facilities are down 2 percent to 3 percent on average. Texas leads the nation in number of self-storage units, boasting 5,744 according to Cushman and Wakefield research data. The Dallas/Fort Worth Metro area has 1,261 units – nearly 22 percent of the state’s facilities, which gives it the greatest concentration of any Texas metro area.
The latest numbers show the Dallas-Fort Worth MSA has a supply of 9.62 rentable square feet per person – with a demand of only 5.42 rentable square feet per person, resulting in an over supply of about 4.2 square feet per person, according to the 2009 Self-Storage Almanac.
That 9.62 rentable square feet per person nearly matches the 2008 Self-Storage Almanac number of 9.61, but is up from 2007’s 8.42 rentable square feet per person.
In an analysis of the Dallas-Fort Worth self-storage market published in the April issue of Market Watch for self-storage owners, Cushman and Wakefield Global Real Estate Solutions Appraiser Kate Noll said Texas is ripe for self-storage development because of its sheer volume of available land.
“The general lack of land constraints plays a major role in the Dallas-Fort Worth self-storage market,” she said, explaining that typical self-storage facilities are single-story, non-climate-controlled buildings with drive-up access, which requires significant square footage. According to Self Storage Date Services, the average facility has 334 units and is about 45,000 square feet.
Trahant, who also is a member of the Argus Self Storage Sales Network, said the relatively affordable land costs in Texas have kept the self-storage industry expanding in the area, but that expansion has constricted along with the tightening market.
That slow down, he said, has helped to steady occupancy rates, but has done nothing to help rents.
“Some markets have been hurting, but in the scheme of things, D-FW self-storage is still doing fine,” he said. “But rents have dropped. People are coming in and shopping for better deals. They’re looking around at units and seeing what kind of deals they can get.”
That competition for renters has meant rent abatements or other concessions to self-storage owners, such as matching $1 move-in specials.
But even given the concessions, Trahant said investors are still looking at the sector.
“As an asset class, it’s still a more stable asset than many classes out there,” he said. “There’s a low default ratio, so from a lender’s standpoint, they do like the prospects.”
Richard Minker, the other half of Minker Trahant and Associates and CEO of the firm, said he is seeing investors sniffing around because of the population forecasts for Dallas-Fort Worth, which has seen an annual population growth of 2.26 percent annually since 2000 and doesn’t look to slow down any time soon.
Of course, interest doesn’t spell buyers, he said.
“We’re not seeing tire kickers; people are calling in more patient money,” Minker said. “There’s still a feeling out there in the commercial arena that there are going to be opportunities and prices aren’t matching expectations right now. But when comparing to other classes, self-storage has most of the options, office, etc., beat.”
Minker said recession or no, self-storage always has stuck to one principal – it “follows the rooftops,” he said, adding no recession will change that.
