It’s a fact that self-storage rental rates have continued to surge in California in recent years. A variety of factors have contributed to the price increases including population growth and a well-performing economy.

Specifically, the average monthly rent for a storage unit in California has climbed more than 26 percent since 2014, according to data from SpareFoot. The average monthly rental rate of a storage unit in California reached $114 in 2017, up 8.5 percent year-over-year from a 2016 average of $105. That’s following a 6 percent year-over-year increase from 2015 and an 11 percent increase from 2014.

Broker Stephen Grossman, president of Laguna Beach, Calif.-based Self Storage Investment Services, notes that the Los Angeles area in particular has been growing “substantially.”

Indeed, in May, the Los Angeles Times reported that the city’s population had passed the 4-million mark. While the region has seen the construction of more dense housing, it’s still lacking in the face of more and more demand.

“There’s a lot of apartments being built and many people are not able to afford to buy single-family homes,” Grossman told the Sparefoot Storage Beat. “And the apartments are not very large so people don’t have as much room. This is driving the rental rates up.”

‘A two-headed monster’

Demand is not just being driven from residents needing a place to store their belongings. There are many commercial customers putting pressure on supply as well, Grossman said.

“It’s kind of a two-headed monster strengthening the storage industry in Southern California,” he said. “Small businesses need a place to keep inventory and many of them are not large enough to rent a typical industrial warehouse in an industrial park. They don’t need all that space and rents are very expensive. Self-storage makes it much more convenient to operate a business closer to a unit and then they don’t need as big of a storefront.”

Plus, Grossman added, many self-storage centers are serving as business centers as well.

San Francisco in the fog during the daytime
San Francisco in the fog during the daytime

‘Density trumps demographics’

Jason Lopez, chief marketing officer of US Storage Centers, said that the pace of rate increases at the company’s California facilities have been at a higher pace than facilities in other parts of the country. US Storage Centers operates about 120 facilities across the country with more than 50 of those being located in California.

In particular, the company operates a heavy concentration of locations in Los Angeles and Orange County.

“Where places are highly dense with people, the rates are much higher,” he said. “Density trumps demographics.”

Besides population growth and a healthy economy, Lopez believes the lack of supply has been a factor in the rate increases.

Brian Somoza, a member of JLL Capital Market’s national self storage team, agrees that population density is a big factor behind the rental rate increases.

But he also cites high barriers to entry that make it harder for developers to build self-storage facilities in the state. Prior to joining JLL, Somoza was acquisitions manager at Public Storage so he speaks from experience as well.

“People will still build but not as much as you see in other markets in the U.S.,” he said. “Between zoning, community opposition and a few other factors, it’s in general very difficult to buy land when competing with multifamily developers. It makes penciling out a storage facility harder to do.”

Storage supply shortage

The problem is not exclusive to Southern California, according to Somoza. Northern California is an even more challenging environment to build in. Besides extremely high land prices and a lack of developable land, there are overlays in the region that can prohibit self-storage use.

General contractor ThomasTown Builders told Sparefoot last year that the percentage of zoning that allows for self-storage has been on the decline. In the past, Ryan Smith, president of ThomasTown, said about 30 percent of any city’s zoning in Northern California would typically allow for self storage.

“Now you might find 10% of that city has property that is zoned for self storage,” Smith said. “Finding zoning that allows self storage is becoming very difficult.”

Challenges in getting projects through the entitlement process are another prohibiting factor.

In the end, Somoza believes “it all goes back to population density.”

“More people, coupled with how difficult it is to build self storage and the fact that new competition isn’t going to pop up next door creates a good environment for self-storage,” he said.

Hitting the peak?

Central California, though, is the exception because of its lack of population density.

Looking ahead, Grossman believes there may eventually be some easing in the price increases. He estimates there is about 30 projects either in the construction or planning stages in the greater Los Angeles area.

“As development increases, there may be some pushback on rates,” he said. “But for the moment I don’t see that occurring. It will take a while for the projects to get built out and they won’t all open at the same time. But eventually, they will put some downward pressure on rates.”

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Mary Ann Azevedo