Market Report Southwest Self-Storage
The self-storage sector has established itself as a major player in CRE, outperforming other assets over the past few years. It has climbed the ranks nationwide as a top investment class, securing dominance in the Southwest. Industry experts anticipate a robust expansion of self-storage in 2023, with Phoenix boasting one of the most vital self-storage pipelines. Over 13.3 percent of existing self-storage inventory is underway in Phoenix, making it a top-five metro for development in the nation.
Self-storage rent growth has slowed as people return to normal life after the pandemic. However, demand is still strong from both a renter and investor standpoint. As an increasing number of households use self-storage, we expect to see further moderation of street rates in the remainder of 2022 and 2023.
- Phoenix was the only top market to see no change in combined rates on a monthly basis.
- Gen Xers are among the biggest users of storage, with 44 percent reporting the use of storage units and 21 percent planning to use them in the near future.
- Secondary markets experiencing rapid population growth continue to lead in street rate gains.
- Raleigh-Durham, San Antonio, and San Diego all saw combined rates for 10×10 NON CC and CC units increase by $1.
According to the national self-storage report from Yardi Matrix, the overall average street rate was $145 per unit, the lowest it’s been this year. On a national level, the overall average street rate, which includes all unit types and sizes, decreased by 0.7 percent annually.
Rents | Vacancy | Construction
The self-storage market demonstrated its resilience with a short recovery period during the pandemic and is back to normal operational levels. The development pipeline continues to be dynamic and new construction has increased 25 percent from Q2 to Q3. Rent per available square foot for the benchmark 100 square foot non-climate-controlled units is up 1.2 percent from Q2 2022 and is up 10.3% compared to Q3 2021. For 10×10 non-climate-controlled (NON-CC) units, eight of the top 31 metros had street rate increases greater than five percent in August, while rates decreased in seven. For 10×10 climate-controlled (CC) units, three of the top 31 had 5 percent or more growth, while 10 experienced negative rate growth.
Currently, there are 760 self-storage properties under construction and 515 prospective properties planned. The construction pipeline for existing inventory increased 20 basis month-over-month in August. Phoenix saw the greatest increase in developmental activity in August compared to July, with the new-supply pipeline growing 60 basis points month-over-month.
Transactions involving U.S. self-storage assets reached a record level in 2020 and 2021 despite the disruption and uncertainties caused by the global pandemic. In 2022, deal flow has slowed the transaction activity in 2021 was due to two outsized entity-level deals that boosted transaction volume. Individual deals and a wide range of buyers are evidence of ongoing broad interest in the sector.
The number of trades completed during the 12-month period that ended in June 2022 eclipsed the pre-pandemic record by more than 70 percent. Even as interest rates began to climb in March, increasing capital costs, transactions actually rose between the first, second, and third quarters. While this indicates substantial investor enthusiasm, the Federal Reserve is expected to hike rates again, possibly dampening for deal flow in 2023.