During the recent SSA Fall Conference and Trade Show, we had the opportunity to engage with industry experts, gaining insights into the current self-storage landscape. Bill Sitar of The Storage Acquisition Group and James McLean discuss the state of acquisitions in the self-storage industry. Sellers are starting to budge as they face pressure from interest rate hikes, and there's a noticeable drop in asking rates driven by REITs. This pressure may lead to more consolidation in the industry, particularly impacting smaller operators.
James: Hey everybody, I'm here with Bill Sitar from Storage Acquisition Group. Really just getting a chance to pick one of the experts' brains on what you're seeing in the field in terms of acquisitions volume. You know, it's not really an easy market, but we've been hearing whispers that sellers are starting to budge as they're realizing that last year's price is not this year’s price. So Bill, what are you seeing?
Bill: Well, we are seeing sellers with expectations from last year that are still struggling and learning about the interest rates, hikes, and how that's impacting, you know, their borrowing capabilities and future growth for their storage facilities. So there is some pressure being felt now by these sellers, we feel. Whether it continues, that remains to be seen.
James: So one other thing that we're seeing on a macro is with, you know, Extra Space's acquisition of Life Storage, we're seeing that asking rates, you know, the average price per square foot to get a unit for the first month has been dropping a lot. You know, these REITs are really trying to push occupancy up. So average price per square foot has dropped dismally in terms of year-over-year changes. While, you know, it's still stabilized since pre-COVID numbers, we feel that there's some pressure to rates and smaller operators don't have the war chest to drop their initial rates that low and keep up with these REITs. What are you seeing?
Bill: We're definitely seeing some pressure on asking rates and we do feel like that added supply to the market because there was a lot of projects that were in the pipeline and are also coming online. So that's also putting pressure on rates and with the pressure on the rates, that's affecting asking prices and overall pricing valuations for these assets.
James: So is that leading to more smaller operators feeling the need to sell? Do you think consolidation is going to continue to happen in the coming months, in the coming years with small operators having a hard time keeping up with these bigger franchises?
Bill: I think it depends where they are in their lease-up, right? I think if some of the operators are at, you know, 50% or stabilized, they're not having that much pressure. But if you're at, you know, a CO deal or you're just coming online, I think you're going to see some pressure start to build on these owners.
James: Gotcha. So the legacy owners might have an easier landing than someone just starting to lease-up and take up new supply in this competitive market.
Bill: That's correct.
James: Great. Well, thank you so much, Bill. It was a pleasure speaking with you.
