There is a storage boom happening in Omaha, but it might be more than the biggest city in Nebraska can handle.
An unprecedented building spree in Omaha may lead to a glut of new storage supply that could soon depress prices in that state’s largest city, according to a report penned by Alex Burnam, senior acquisitions analyst at StorageMart.
Burnam reports that Omaha currently has about 61 “institutional quality” self-storage facilities representing about 3.5 million square feet. But there’s now about 22 new properties in various stages of the development pipeline representing 850,000 square feet – which, if they’re all built, would lead to a “whopping 24 percent increase in supply” for Omaha, his report says.
Readily available capital, a strong economy and an increased number of players in the self-storage market largely account for the proliferation of storage development projects in Omaha, Burnam says.
Price pressure ahead
Coming at a time of rising costs – including higher property taxes in Omaha – the net result could be suppressed prices and investments down the road in Omaha, said Burnam, whose firm owns four self-storage facilities Omaha and additional two buildings in Lincoln, Nebraska.
“It’s not to say (Omaha) doesn’t need more space,” Burnam told Sparefoot.com in an interview. “It’s just that a lot of (space) is coming online soon – and that’s going to cause some pain. Price pressures are coming.”
He said StorgeMart is already starting to see a slowing in price growth at its facilities in Omaha, while occupancy rates are largely stagnant.
A hot streak for building storage
Bill Lange, president of the Nebraska Self Storage Owners Association, agreed that Omaha is currently undergoing a building boom. In western Omaha, along just one street, nearly 2,000 new self-storage units have been added to the market in the past 18 months alone, he said.
“Omaha has been real hot,” said Lange, head of Green Steel Buildings Inc., a Kearney, Neb.-based self-storage design and engineering firm. “There’s a lot of building going on.”
Lange said the self-storage sector in Omaha and Lincoln, Nebraska’s second largest city, have become attractive for the same reasons experienced in other cities across the country: Low interest rates, solid returns, and growing interest in the industry on the part of larger investors.
In particular, Lange said he’s seeing more developers of multifamily housing in Nebraska and elsewhere jumping into the self-storage sector, figuring that many of their housing tenants will correspondingly need more storage space for their belongings.
Secondary markets feeling the heat
The privately held StorageMart, which owns 197 properties in the U.S., Canada and the U.K, entered the Omaha market about two years ago, snapping up four properties, Burnam said.
“Omaha was pretty much the next logical step for us. It’s really healthy. It’s worked well for us,” Burnam said.
But self-storage has become hot in many cities, including “secondary markets” like Omaha, and new construction has boomed, he said.
“It tracks the national trend, but it’s more pronounced in Omaha,” said Burnam of new construction. “It’s shocked us. There’s a lot of money that wants to get into the self-storage market.”
In his report, Burnam said commercial banks, and not just REITs and other investors, are now gung-ho about lending to self-storage developers, due to reliably solid returns.
“Local banks have recognized this performance and actively sought to boost their lending to local developers of self storage,” Burnan writes. “This commercial lending activity has supported robust self storage construction and investment.”
You can read the report here: “Omaha Self Storage Industry Faces Rough Times Ahead: Rising Costs and Falling Revenue to Stunt Investments.”