Portland, Oregon could be headed into overbuilt territory when it comes to self-storage, while some developers and owners say the rate of growth is sustainable.
In all, more than 1.6 million square feet of new facilities are now under development in the Portland area, adding 12 percent to the overall supply of self-storage space in the region, according to Union Realtime, a New York research firm for hedge funds and other real estate investors.
The firm counts at least 19 new facilities now under development in Greater Portland in a report on the market issued last month. The report states that the pace of new self-storage construction in the Portland area is running far higher than the norm in other parts of the country – and twice as fast as what the US Census is projecting in Portland.
“It’s inevitable, as you’ll see,” James de Gorter, a co-founder at Union RealTime, said of prices taking an eventual hit in Portland.
The bottom line: The overbuilding, as Union RealTime describes it, could lead to lower rental and investment prices for facility owners and investors, similar to what’s happened in other cities, such as those in Texas and other red-hot places that are seeing a self-storage boom.
A bubble in the making?
The Portland boom will probably continue as long as the “very attractive economics” hold up, de Gorter says, such as low interest rates and being able to build new facilities for $100 per square foot and then flipping them for $150 to $200 per square foot. But sooner or later, the bubble will burst, he said.
But self-storage developers and others, including city officials in Portland, say they don’t see a bubble forming – not in a city where the population has grown by 20 percent, more than 632,000 people, over the past 15 years. The metro Portland area is home to 2.3 million people
“We think we’re going to be just fine,” said Daniel Lyman, co-founder of Get Space LLC, a Portland self-storage owner and developer that’s already built four facilities in the Portland area since its founding in 2013.
Get Space, which is partnering with the private equity firm Richie Group out of Salt Lake City, currently has one self-storage facility under construction and five more in the planning stages.
Lyman said a case could be made that there’s an oversupply in some sections of Portland, such as near the downtown, but the entire area has been underserved for years amidst its population boom.
Just getting started
In 2013, Get Space conducted a thorough market study of the area and found there was room for as many as 70 to 80 new self-storage facilities – and developers haven’t hit that figure yet, he said.
John Bull, owner of John Bull Builders LLC of Portland, said his firm normally builds self-storage facilities across the country for large real estate investment trusts and self-storage companies. But he’s so bullish on his hometown market that he’s thinking of buying, upgrading and then flipping a facility just outside Portland, he said.
“Everywhere you go here in Portland, the facilities are all full,” Bull said. “The vacancy rate is low. I don’t think there’s overbuilding.”
He noted that more multifamily housing is being built in the city – and multifamily dwellers are among the biggest users of storage facilities.
Even if there was some overbuilding going on, said Bull, all signs point to the city of Portland continuing to grow – and the demand for self-storage growing with it.
“People are not just building for now, but for the future,” Bull said.
Pricing wars ahead?
But not all developers are so confident.
Kevin Howard, owner of Northwest Self-Storage, said he fears a pricing “bloodbath” in the next year or two, at least in the downtown area of Portland, where he said large national players are quickly developing and buying up large self-storage facilities.
In contrast, he said Northwest Self-Storage, which is part of National Storage Affiliates, a real estate investment trust, is focusing on building smaller facilities, roughly 38,000 to 50,000 square feet each, in Portland’s fast growing suburbs. The firm currently has one facility under construction and seven more in the permitting stage, said Howard.
“We’re also offering to buy facilities,” he said. “We believe in this (suburban) market.”
Some owners and developers say they may even be helped by new restrictive city zoning laws now under discussion.
The city is currently putting the finishing touches on its 20-year comprehensive development plan, which would ban self-storage facilities in certain industrial areas near the harbor, airport and rails yards, as the city seeks to promote industrial jobs. The sentiment is that self-storage facilities simply don’t generate the number and type of jobs Portland is seeking in its newly established “industrial overlay” zones.
Steve Kountz, a senior planner at the Portland Bureau of Planning and Sustainability, said the restrictions aren’t an anti-self-storage backlash, the city just wants to restrict development to areas closer to where people are living, he said.
“It’s not at all aimed at self-storage facilities,” said Kountz, who added he’s talked with self-storage owners and they have no problem with the zoning changes.
The new zoning laws would take effect in 2018.