Public Storage has been on a development spree as of late, and it doesn’t look like the company is ready to take a break any time soon.
As Public Storage enters 2017, the self-storage REIT had 4.2 million square feet of new facility space currently under development, at an estimated price tag of $520 million. That is more than double it’s deliveries in 2016, which brought the opening of 16 facilities spanning 2.3 million square feet of space.
But CEO Ron Havner indicated during the company’s earnings conference call that they are still on the look out for new development opportunities where the economics make sense.
“If you are talking about a market like Houston, where construction costs have not come down, land prices have not come down, but rental rates are coming down—I would say future development in the near-term…is probably limited,” Havner said. “But that doesn’t mean other markets such as Seattle, Miami, LA don’t have deals to pencil, so we will continue to build as long as the economics are there.”
Facing the surge
Overall, Havner estimates that new self-storage deliveries will be up 25 percent in 2017 compared to 2016, based on the activity of the major public storage operators. Havner said much of the new supply is concentrated in specific markets: New York, Portland, Austin and Denver, for example.
One place Public Storage is wrapping up its development cycle is New York, where it has no new projects underway—unlike competitors CubeSmart and Extra Space Storage that have several.
“A 25 percent increase in supply is a headwind to pricing power, and certainly in those markets that I mentioned earlier where those deliveries are coming,” Havner said, adding that amount of new supply coming to New York will most likely lead to rent roll downs.
Public Storage just opened its most recent New York-area facility, a 4,000-unit facility at 133 2nd Street in Jersey City, NJ. The facility has more indoor units than any other facility in its portfolio.
Year end results
Public Storage concluded 2016 with a 5.5 percent increase to same-store revenue, and a 6.6 percent increase to same-store NOI. Annual contracted rent rose 4.7 percent year-over-year, from $16.76 per square foot to $17.55.
Average occupancy for the year remained 94.5 percent, the same as 2015.