Investor interest in U.S. self-storage properties remains high, as long-term renter demand improves, according to Marcus & Millichap’s Self-Storage Research report for second half 2018.

Competitive bidding has advanced the national average price per square foot 11 percent over the 12-month period ended in June, to $108 per square foot. Cap rates have compressed, as well. For assets sold in the past year, the average initial yield is in the mid-6 percent zone, down from the low-8 percent band in 2010.

Overall, higher sales prices are attracting sellers in the final months of 2018. Yet, the prospect of rising lending costs due to interest rate hikes is narrowing the operating margins for buyers, according to the report.

With the combination of higher prices and lower first-year returns, some buyers seeking higher cap rates are moving toward secondary and tertiary markets, where initial returns range from mid-6 percent to low-7 percent.

Marcus