This year is poised to be another big one for the U.S. multifamily industry, and that could bolster the self-storage sector.
Developers are on track to start construction of 405,000 apartment units in 2015, according to the annual construction report from Dodge Data & Analytics. That’s would be a 7 percent rise compared with 2014.
Last year was a robust one for the multifamily industry. As of the third quarter of 2014, developers had completed 294,000 apartment units, a 55 percent jump from same period in 2013, according to the National Multifamily Housing Council. During the third quarter of 2014, the number of starts rose 34 percent from the previous year to 360,300 units.
“Financing for construction projects is becoming more available, reflecting some easing of bank lending standards,” said Robert Murray, chief economist with Dodge Data & Analytics. “Interest rates for the near term should stay low.”
Effects on self-storage
The apartment construction boom could stimulate self-storage development in some markets.
“New apartment construction is always good for a submarket for us,” said Dean Jernigan, principal of self-storage lender Jernigan Capital. “It signifies a growth area, and with the construction, new potential customers are added.”
Jernigan said that when he’s underwriting a loan for a self-storage project, he likes to see at least 35 percent of the population in that submarket renting apartments.
“The higher the rent the apartment dwellers pay, the better we view the submarket,” Jernigan said.
Jernigan said apartment dwellers support the storage industry because they move more frequently than homeowners.
“Renters move every three years. We like people who live in small quarters and especially those who move around frequently,” Jernigan said.
The average homeowner moves every 10 years, he said.
The good news for apartment and self-storage developers is that demographics underscore the multifamily surge, Ryan Severino, a senior economist with REIS, told National Real Estate Investor.
“There are a lot of young people in the market that are predominantly renters and not homeowners. This will continue to provide significant demand, even as new supply growth accelerates,” Severino said.
State of self-storage development
Self-storage development has been rising slowly over the past three years, but it remains behind pre-recession levels, according to the U.S. Census Bureau.
Construction spending on self-storage projects reached $558 million between January and November 2014. That’s a 66 percent increase over the entire year of 2013. The pace of spending is accelerating, with year-to-year increases of more than 100 percent in September, October and November.
Marcus & Millichap estimates 4.7 million square feet of self-storage was developed in 2014, up 46 percent from 2013.