Public Storage & Extra Space Foreshadow Shifts In New Supply

This article originally appeared on Sparefoot.com.

The top executives of the country’s two largest self storage owners and operators — Public Storage and Extra Space Storage — might not see eye to eye on everything. But they definitely agree on one thing: Delivery of new supply should start tapering off in 2020.

Public Storage CEO Joe Russell said on the REIT’s Oct. 30 earnings call that following an influx of about $5 billion worth of new supply in 2018 and another $5 billion or so this year, he foresees new-supply deliveries dropping 10 percent to 20 percent nationwide in 2020.

“We’re hoping, as many others are, that it’s 20 percent or even better,” Russell told Wall Street analysts. But with roughly $4 billion worth of facilities projected to come online around the country in 2020, “we’re still not out of the woods,” he added.

During Extra Space’s earnings call on the same day, CEO Joe Margolis said the challenges currently facing the Salt Lake City, UT-based REIT stem from new supply. Extra Space executives continue to believe new-supply pressures will diminish in 2020 compared with this year, he said, but there won’t be a “wholesale falling off the cliff.”

“We’ll see some markets that will be in worse positions [due to new supply],” Margolis said, “and we’ll see some markets that will be in better positions as they lease up.”

Supply concerns ease in “poster-child markets”

Russell said that in “poster-child markets” for elevated supply levels, such as Austin and Houston, TX; Charlotte, NC; Chicago, IL; and Denver, CO, new-supply volume is beginning to wane — “in some cases pretty dramatically.” But, he added, “we’re still dealing with the lingering effects of the amount of supply.”

In response to ballooning supply levels, Glendale, CA-based Public Storage has largely discontinued new development in Texas markets like Austin, Dallas and Houston, Russell said. But the REIT is pursuing projects in markets “where we’re seeing opportunities to get good traction,” he added. The company’s development pipeline contains nearly $540 million worth of new or expanded facilities.

Other highlights of Public Storage’s third quarter:

• Same-store revenue inched up 1.1 percent compared with the same period in 2018.
• Same-store NOI declined less than 1 percent versus the same time last year.
• Same-store operating expenses rose 6.4 percent compared with the year-ago period, in large part due to a 69.5 percent surge in marketing expenses.
• The REIT made 10 acquisitions with a total price tag of $110.7 million and anticipates closing the year with about $375 million in acquisitions.
• The company spent $35 million to pick up remaining 74.25 percent ownership stakes in two California facilities.
• The third-party management program added 13 facilities.