Where are the hottest markets for self-storage development?
Three U.S. markets stood out when Union Realtime LLC of New York, NY released its study about who’s generating the most heat in self-storage these days:
- Dallas-Fort Worth-Arlington, Texas CBSA, with 7,698,747 square feet of self-storage development
- New York-Newark-Jersey City, NY-NJ-PA CBSA with 14,777,229 square feet
- Phoenix-Mesa-Scottsdale, AZ CBSA with 7,516,436 square feet.
Big Storage in the Big D
Dallas-Fort-Worth-Arlington expects to have a 10.7% increase in total supply once it completes all its development projects and now has 71,945,083 square feet of existing supply, the most of any CBSA in the nation. Texas is experiencing rapid population growth, raising the need for more self-storage.
“It looks like despite the large amount of supply already in the area, developers are still bullish on this market as almost 7.7 million square footage of supply is going to be added,” wrote James McLean, market analyst with Union Realtime.
He also advises: “Don’t expect rates to rise in that market. When you add this much space, rates don’t really spike.”
Among the giant REITs in the Dallas area are Public Storage, which in late April 2021 spent $1.8 billion to purchase the ezStorage portfolio with 48 properties totaling 14.2 million NRSF. Public Storage also bought a portfolio of 56 facilities for $1.5 billion in early November 2021, focused in the Dallas market.
The Storage Beat checked in with a few Texas-based experts to learn more what’s making storage boom in Dallas.
Why is Dallas-Fort Worth self-storage so hot?
Logan Foster, commercial real estate broker at Bellomy & Co.:
“I think most of it boils down to population growth in Dallas-Fort Worth. The Metroplex has seen the largest population growth of any U.S. metro area between 2020 and 2021. Paired with Central Texas people having a lot of stuff and being emotionally tied to it, not wanting to let it go but not having anywhere at home to really store it. Self-storage is the next-best option.”
Ted Culbreth, vice president of business development at SBS Construction in Boerne, TX, a general contractor specializing in self-storage:
“Why would it not be hot? So many factors go in its favor. A huge population increase, a giant metroplex, really high income compared to the cost of living. Texas usually gets into downturns later than everybody else. People are moving into the area at a very high rate.”
Andrew Guinn, managing director of self storage, Seamless Capital in Austin, TX, which is pursuing self-storage development opportunities in Texas.
“Not only do you have growth in the inner city, but you also have a lot of suburban growth happening, contributing to growth in the storage market. The cost of living is relatively attractive compared to some major metros; I think a lot of people on either coast want to get to more tax- and business-friendly places. There are a lot of people moving there, and that’s certainly fueling storage in the Dallas-Fort Worth market.”
What advice would you give someone that wants to get into the field of owning/operating self-storage businesses?
Logan Foster: “They have to be aware of how competitive the market is currently, and how many different individuals and groups are looking at self-storage now as an asset … Also, have a plan on who you will finance the property with before going into deals. Also, have a plan of how you think you’d run and manage the property because that will play a big part in what size property you will look for.”
“Last, be willing to get competitive, because there are more eyes on those [properties] these days. You have to be willing to stretch outside of your comfort zone in regards to price. Be willing to get uncomfortable with whatever price you offer, knowing you are going to be able to increase the worth of the facility you are purchasing.”
Ted Culbreth: “Do lots of homework. Get a good feasibility study. There’s so much homework you have to do, market-specific research. What’s already being planned? Who’s working with who? Hire a good civil engineer who can tell you the ins and outs.”
Andrew Guinn: “Developers need to be very careful on what rents they are underwriting, know your market extremely well. With occupancy so high, the rates that you see online aren’t the effective rent that the stores are actually getting… What can happen in a hot market is developers come in and overdo it, and that can ruin the market for everyone. They should be careful and do their homework.”
Originally published on SpareFoot.com
