Here is Adam Pogoda’s article, previously published on List Self Storage.
If you talk to anyone in the storage industry, they will tell you that they have never seen a market as hot as this one. Existing facilities are full, rents are rising, cap rates are at historic lows, and every supplier is so inundated with orders that they cannot keep up. The word ‘unprecedented’ has been used an unprecedented number of times in the last 16 months, but there is no better word to describe the self-storage market – what is happening right now is unprecedented.
The best advice is to create a sound investment strategy, stick to your guns and recognize that nothing lasts forever – even a red-hot market.
Everything is going gangbusters in this business, but does that mean it is the right time for YOU to buy or build? ‘Probably not,’ would be my answer. If the project you are looking at right now only works because you are taking today’s numbers and growing them indefinitely or extrapolating today’s leasing velocity for development projects – you’re overpaying! The demand bump that storage has received due to the pandemic is bound to retreat, and the sky-high rents that have spurred every Tom, Dick, and Harry to build will inevitably increase supply. Increasing supply coupled with decreasing demand will only have one effect on occupancies, rents, and values – the laws of supply and demand will not be defied by self-storage.
That being said, we did close on a facility last week, and we are closing on another next week. Each property had a compelling story as to why it made sense to buy. Each is in a supply-constrained market, each is being acquired at a substantial discount to prevailing comparables, and each complements our existing portfolio. There are still good deals out there, but there needs to be a compelling reason to move forward at this moment in time. It probably does not make sense to ‘reach’ right now for a deal. The best advice is to create a sound investment strategy, stick to your guns and recognize that nothing lasts forever – even a red-hot market.