What does the rest of the year hold for the self-storage sector?

To answer the question we checked in with JLL Managing Director Brian Somoza. He co-leads the national self-storage real estate brokerage team at JLL with Steve Mellon, with Mellon based in Houston and Somoza out of Los Angeles.

Somoza specializes in investment sales, acquisition and advisory services. Prior to joining JLL, he was on the acquisitions and development front at Public Storage, the nation’s largest self-storage REIT.

Somoza recently talked with SpareFoot’s Self Storage Beat about the self-storage industry’s opportunities and headwinds at this point in the country’s long-running real estate cycle.

What is the self-storage sector’s outlook for the remainder of 2019?

Brian Somoza: “The last half of 2019 is likely to see more acquisition opportunities than what we experienced in the first half of the year. On lease-up self-storage assets  — properties that recently opened and/or 30 percent physically leased — you are seeing downward pressure on rental rates in certain markets. We will see some pressure there to sell and opportunities to buy.

The Texas and Colorado markets are experiencing downward pressure on rental rates and there will likely be acquisition opportunities there over the next six to 12 months. Cash-flowing assets, specifically portfolios, are trading at historically high values and that should also get the attention of owners that haven’t historically been sellers.”

What’s the current sentiment in the capital markets for financing development and acquisitions in the self-storage industry?

Somoza: “New capital is entering the space. For cash-flowing assets, financing is very favorable.”

Are real estate investors still interested in the self-storage sector?

Somoza: “Institutional capital is a big player in the industry and it continues to enter the space through acquisitions and joint ventures. During the Great Recession, self-storage performed better than most other real estate property types. Private capital is finding it more and more difficult to compete with institutional capital, and I believe that trend will continue over the next 12 months.”

Q: Are there any headwinds on the horizon for the self-storage industry?

Somoza: “New self-storage supply has been a headwind in most major markets, and I believe it will continue to be a headwind through 2020.”

What self-storage market trends are emerging that you are keeping an eye on?

Somoza: “I think the big one is valet/concierge service. This trend will make an impact on the industry in high-end markets but how much of an impact is still unknown. I think it is something to keep an eye on.”

How do you think full-year deliveries for 2019 will compare with 2018?

Somoza: “New deliveries for the year will be on par with last year, but I think you’ll see it slow down in 2020.”

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Kerry Curry