As I am looking at a self storage project, I have noticed (1) apartment rent growth in the market and (2) housing demand.
I am clear there is a link between the two and self storage demand. I am just not able to have a formula that quantifies how much the impact is on storage demand or how much square foot per capita for self storage equilibrium is impacted.
But there is a link, in my opinion.
In markets where the prices of homes, along with apartment rental increases, self storage vacancy appears to be low.
If you remember from last week’s episode, Austin was the number one city by population growth, a whopping 6%.
It also has the most significant housing price increase in 2021, almost 28.8% (information from Marcus & Millichap 2022 Self Storage Outlook report).
The self storage vacancy rate appears to be in the mid 4% from my research using multiple sources.
Apartment rent growth appeared to also be 24.8% in 2021.
Salt Lake’s home price growth was 23.7% in 2021, but the apartment rent growth appears to be much lower. According to my research, the average rent in 2020 there was $1,478 per month and at the end of 2021 was $1,529 representing an average rental increase of 3.34%.
Storage vacancy there looks like it is just under 8%, higher than in Austin, where the apartment rent was much higher but still good.
These numbers are not exact, but they point to a trend that I am now using to some degree as I look at deals.
Now I know there will be other factors impacting self storage demand other than population growth, housing cost, and apartment rent increases. But only population directly factors into the per square foot per capita number, which appears to be the sole benchmark we use as an industry in measuring demand.
As an industry we grow up and approach supply/demand analysis as other industries do.
Walgreens doesn’t look at drug store square feet per capita to determine where they will go. They have a system to look at population, spending patterns, income per household, and more to determine locations and what they can pay.
I hope someday for the industry, or somebody smarting than I am, to have a mathematical formula or a computer algorithm to input this type of data into to get a direct correlation to self storage demand.
If anyone wants to partner with me on this, reach out.
Until that day, as I look at a potential deal, I am also checking housing price increases and apartment rental increases as a percentage and factoring that into my thought process around the market area.
