Research - MAY 17, 2017

Self-storage continues to strengthen

by Andrea Waitrovich

The demand for self-storage properties continues to strengthen, but mounting supply pressures are a growing concern, according to a recent report from Marcus & Millichap.

Although new supply has not been enough to overwhelm pent-up demand, construction may have a greater impact in the future.

Positive demographic trends and the strength of the multifamily market will stimulate further need for storage space. Strong population growth and rising incomes foster a broad and widening tenant pool. In addition, the retirement and downsizing of baby boomers plus the continued emergence of millennial households will sustain demand for self-storage space.

Tightening of U.S. vacancy will be problematic in the face of supply-side headwinds, which may lead to additional concession usage and a softening of revenue growth.

Marcus & Millichap expects underlying drivers of self-storage demand to remain in place, sustaining investor interest. Buyers still want to acquire properties and expand portfolios, though they are being more cautious with their underwriting and showing resistance to elevated prices.

And there may be a pullback in purchasing from the major REITs, which could present opportunities for small to mid-size investors. Regional institutional groups with private equity also may fill the void, exploring secondary markets and older properties.

To download the report, click here.

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