With about $3.5 billion spent on self-storage development in 2016, and up to $4 billion expected this year, the outlook for next year is still up in the air. Even the country’s largest self-storage operator is still discerning which way the development winds will blow.
“2019 I would say is still a bit cloudy,” said Tom Boyle, Public Storage’s incoming chief financial officer, during the company’s first quarter earnings conference call with analysts.
On one hand, the company is getting more calls from developers who want to unload their sites.
“We’re actually seeing this from time to time with some reverse inquiries,” said Boyle, “a developer might own a piece of property for a period of time and then has basically changed direction relative to their own development and intent to actually build a property.”
On the other hand, Boyle said lease up of the company’s development properties is strong. For example, Public opened its largest facility in Jersey City just over a year ago. The 4,000-unit facility just leased its 2,000th unit, Boyle said.
“That’s the equivalent of four properties where when we built the property we though it was going to take us up to four years to stabilize it,” Boyle said. “We’re only a year into it and we’re beyond 50 percent. We’ve got very good traction and vibrancy.”
Room for well-placed development
Boyle said it makes sense for the company to continue to source and look for new development opportunities, and other developers will continue to do so as well.
“I wouldn’t say we’ve seen anything that necessarily is going to change that,” Boyle said.
Of course the viability of continued development varies market by market.
Joe Russell, president of Public Storage and incoming CEO, said during the call that Miami, Raleigh, Charlotte, Atlanta, New York, Dallas and Houston are the most prone to a slow down in development projects.
“It’s tough to peg and see what kind of discipline continue to play through relative to the amount of funding that comes from banks and other sources of capital,” Russell said.
That said, Russell said the company is still experiencing good traction when it comes to beating or exceeding its lease up assumptions.
“We continue to see good reasons to continue developing when we’re finding the right land sites and we’re finding the right economic returns.” Russell said.
Public delivered four new facilities and expansion projects during the first quarter, a total of 500,000 square feet of at a cost of $60 million. The company has another 2.7 million net rentable square feet under development in new facilities and 2.3 million square feet in expansion projects currently underway.
First quarter 2018
During the first quarter of 2018 Public Storage posted same-store revenue growth of 2.1 percent compared to the previous year, and eked out a net operating income increase of 1.7 percent.
Average same-store occupancy for the quarter fell just under one percent from the year before, from 93.1 percent to 92.3 percent. Realized rent per occupied square foot rose 3 percent from $16.79 to $17.30.