Marcus & Millichap Optimistic for Self Storage in 2019

The Marcus & Millichap National Self-Storage Group released its 2019 Self-Storage U.S. Investment Forecast; a 51-page outlook reporting on the health of the self storage industry. Co-authored by Joel Deis, vice president, national director, and John Chang, senior vice president, national director, the report indicates 2019 is looking favorable, despite pockets of supply risk.

Millennials and Storage

The report references that younger adults and expanding businesses drive the need for storage, and the industry continues to benefit from this demand. Millennials are aging (80 million in the U.S., to be exact), and their need for storage represents 28 percent of non-commercial renters. While younger generations prefer smaller unit floor plans, they tend to visit their units more frequently. Approximately 19.6 percent visit more than once per week (read Clutter article).

Storage for Private Business

Private businesses are another major source of demand, comprising 19 percent of customers at a typical self storage facility. The report anticipates more companies in 2019 will make use of storage for its business as it offers cost-effective rents compared to typical office and retail rents. To further support the need for storage with small business, during the last recession, downsizing businesses and consolidating households created new sources of storage demand between 2009 and 2012. This same demand continues to increase post recession, thus supporting the need for storage for business purposes.

Construction and Development

While the report indicates that there will be fewer projects developed this year as compared to 2018, heightened development has yet to negatively impact self storage. There is pent-up demand for new storage supply in major metro markets due to subdued construction earlier in the cycle. Therefore, in even some of the most developed metros, facilities that are open and operating will benefit from demand. However, smaller cities will lead growth in 2019, favoring tertiary markets.

Markets most impacted by new supply include Seattle-Tacoma, Denver, Nashville and Charlotte, and will face pressure to lease up. While the pace of development was to keep up with rapid population growth, demand still outpaces supply.

Other Highlights:

Developers and large operators who are experts of adaptive reuse can benefit from retail locations with closing big box giants such as Sears. In 2018 alone, U-Haul purchased 25 vacant Sears and Kmart stores across the U.S. for such conversions.
Buyers are entering the industry from other commercial property types for the limited management needs and positive yield.
Private investors have begun to pursue more self storage properties in smaller markets, where yields are generally higher than in the major metros.
Institutional and REIT buyers remain active in larger cities.
Financing remains readily available, but terms of the loan will vary depending on the borrower’s industry experience and how lenders perceive the risk profile in the local market.
New technologies play a critical role in customer engagement and acquisition. Self-service kiosks, online automated payment systems and electronic locks are just some of the innovations taking hold in the industry.
Population mobility is a key consideration. In the last several years, population is migrating south and west. This can be attributed to job openings, lifestyle and climate preferences, and tax reform.