As U.S. consumer spending rebounds, the self-storage industry is building more facilities where Americans can stash their ever-growing collections of stuff.
Developers will complete 4.7 million square feet of storage space in 2014, according to a new report from real estate brokerage firm Marcus & Millichap. That’s about 46 percent more than the 3.2 million square feet of space built in 2013.
Richard Bird, director of the firm’s National Self Storage Group, said the cost to buy existing facilities has risen to the point where development is looking more attractive in some markets. Over the past year, the cost to buy self-storage facilities has climbed 17 percent to an average of $75 per square foot.
Bird said he’s “starting to see some new development coming online for the first time in awhile.”
Hot spots: Texas and California
Newcomers and industry fixtures alike are plotting new self-storage developments, he said.
Marcus & Millichap’s latest figures show the current pace of development is still far behind pre-recession levels. From 2005 through 2008, more than 10 million square feet of storage space was completed each year.
Today, 11 million square feet of projects are planned across the country, according to the report. Development hot spots include Texas and California, where 1.4 million square feet and 1.2 million square feet are on the books, respectively.
Rising consumer demand
The report cites a jump in consumer spending as a contributing factor to the success of the self-storage industry. Sales of items such as sporting goods, apparel, furniture and appliances have risen 3 percent year-over-year, the report says.
“U.S. consumers are clearly back in an accumulation phase, buying new things that will inevitably relegate older possessions to self-storage spaces around the country,” the report says.
The strong demand has driven down vacancy rates and driven up monthly rents over the past 12 months, the report says. Average rents climbed 4.7 percent for climate-controlled 10×10 units over the past 12 months. Vacancy rates dropped 1.3 percent over the last 12 months, standing at 10.9 percent at the end of the second quarter.
“While it depends on the submarket, I don’t anticipate that there will be enough development to hurt the industry,” Bird said. “I definitely see an equilibrium there.”
Bird said many new entrants in the industry are forming joint ventures with established operators, paving the way for new facilities in underserved markets.
“They are teaming up with people that understand the importance of doing research to find where to build facilities,” Bird said.
The national self-storage report can be downloaded for free from Marcus & Millichap’s website. Free reports on individual U.S. markets also are available. Registration is required.