A big part of a leader’s job is to look into the future and predict what is coming so we can effectively prepare our company and people for it.
If you are starting or growing your self storage business, you are the Leader.
There is no better way to see trends and get a perspective on the future than going to the industry national conventions.
I got back a few days ago from the 2017 Inside Self Storage (ISS) World Expo, and it was great meeting many of you there.
I also appreciated the feedback I received for Version 2.0 of the Storage World Analyzer. I took that back to the developer and it is being incorporated into the program. I am proud and excited about what this new program will do for us. More on that to come.
What I want to do today is share some of my takeaways from the ISS Conference. I’d also like to hear from those of you who were there about your insights. Please share below in the comments section!
Has The Market Peaked?
It appears from looking at REIT activity and transaction numbers, that the market has reached its peak.
In other words, CAP rates don’t appear to be going down and prices don’t appear to be going up.
REIT acquisitions have slowed down. Probably due to the number of new facilities that have gone in service, but also because of the uncertainty out of Washington. Especially around tax policy.
As I looked at transaction slides, the peak in transaction numbers and pricing happened around July/August 2016.
Now that doesn’t mean prices are dropping – yet. It just appears as if they are not going up.
It also looks like listing inventory is down somewhat.
From talking to Brokers, I got the feeling that they are dealing more with “Mom & Pop” self storage facilities than “Institutional Grade” in their listing portfolios. These are the value-add opportunities that we, as small investors, love.
Most Brokers, but not all I talked with, are informing potential listing Owners that it’s time to be more realistic about their pricing and expectations for a sale. Especially those Owners who are not in Tier 1 markets.
That was welcome news.
I haven’t seen that translate into the market yet, but I do anticipate it coming.
Are Rental Rates Still Going Up?
I also took away the fact that the rate of rent increases are probably going to slow down.
This is due, in large part, to the amount of new inventory hitting the market from the construction boom that occurred the last few years.
So be careful in your Proforma’s. I would not be using 5% or more per year expected rental rate increases (just my opinion). There may even be some rental rate decline in submarkets that have large volumes of new square footage flooding the market.
Your feasibility reports will inform you on any given submarket.
Be careful during your project analysis if you hit your benchmark numbers primarily due to “raising current rates to current market rates.” I’m not saying this isn’t a valid value-add scenario in some cases, but you’ll need to know the details of the submarket fundamentals.
The Good News For The Smaller Investor
The last data I saw still showed over 60% of all self storage facilities are owned by people who own just one facility.
This is great news for the smaller investor.
Even though there is a lot of activity by REITS and larger players, this is still a “Mom & Pop” industry.
Many of those 60%-plus owners will be selling in the next decade.
What prompted their entry into the market usually has very little to do with market dynamics. It usually has more to do with life transitions they are going through: aging, getting sick, relocating, retiring, etc.
This is where the opportunity for us, the “Seller” investor, lies.
My experience with many of these Owners is they get very complacent with their facility and cash flow. At some point, many get scared to raise rents for fear of losing their tenants. They end up leaving a lot of money on the table for someone else to get.
As I said in the last series, we can usually get from between 6% to over 10% more income per facility just by tightening up the management.
As I look back on our acquisitions, most have been this type. We purchase from someone who has owned their single facility for a number of years. Little retail sales, little or no truck rental, when they have price increases existing customers are usually exempt, and on and on.
In my humble opinion, perhaps over half of these facilities will hit the market in the next decade. Many have extra land for the value added play we discussed in the last series “How to Analyze Self Storage Properties for Maximum Profit in a Sellers Market.“
That is great news for us. These are the facilities we will purchase, enhance, add the extra value and position for the increased percentage of the population growth and the larger percentage of the population who will use self storage.
These are some of the takeaways I got from attending the ISS convention.
I would be interested in hearing what you got if you attended and what sessions you attended and learned the most from.
Please share below in the comments section.
As always, let me know your success and challenges getting in and growing your self storage business.
