Consolidation Trend in the Self-storage Industry—is it really a thing?
Self-storage is one of the greatest investments one can make. Profitability continues to increase as the pandemic continues as rents are increasing and renters are downsizing—and storage rates increasing.?
Consolidation is a huge trend in the industry—but is it really a thing? Potential investors may be skeptical as REITs are seemingly acquiring properties at an alarming rate.
Here are the top facts you need to know about consolidation in the self-storage industry:
Is Consolidation Rapidly on the Rise?
The belief amongst self-storage owners and investors is the same: Consolidation is occurring at a rapid pace in the industry—and REITs are grabbing available properties. However, data shows a different story.?
Many are anxious regarding the industry consolidation as they believe REITs are buying all of the properties on the market. This is simply not the case.
A Brief History
Of the 42,000 self-storage facilities in the United States, REITS only account for a mere?13.4%. Around 76% of storage facilities are purchased and run by private local owners and regional owners.
REITs are strict in their procedures for purchasing specific storage properties. These unwavering prerequisites allow for regional owners and larger businesses to step in and compete for the properties.
Prerequisites for REITs can include:
·???????50,000 to 58,000 square feet of rentable space on property
·???????Dense population in urbanized area
·???????Non-mixed components and business on property
REITs search for opportunities that provide ample advertising in the top Metropolitan Statistical Areas. If the properties do not fall within these areas, REITs are not as interested nor efficient in their operation.
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New Developments
Only a fraction of new developments underway are originated from REITs. For example, only 18% of newly developed self-storage facilities are?owned or operated by REITs.(https://www.neighbor.com/storage-blog/self-storage-industry-statistics)
The statistics show there is always room for investors and owners in the industry. Although REITs typically make huge purchases on some of the biggest storage facilities on the market, regional and local owners are proven to be building new storage developments more than REITs.
Taxes
Investors are in search of new ways to increase their profits and net operating income (NOI). Real estate taxes are the most costly expense for owners; therefore, owners are getting creative.
Owners are reducing costs by:
·???????Lessening staff members
·???????Replacing employees with technology i.e. kiosks
·???????Underwriting average expense ratios
To operate more efficiently, owners are being urged to go fully mechanized with their self-storage properties.
Bottom Line
Self-storage investments continue to increase as more properties become available. Rental-rate growth is experiencing downward pressure as the market with owners becomes more cautious with their investments.
As the industry continues to boom, however, more investors are stepping to the plate to acquire and develop new storage properties. Solid demand and pricing metrics are expected as private owners continue to prove competition for REITs.
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