About 89% of the top markets in the US, are experiencing rental rate declines due to market saturation. There are an estimated 650+ new facilities currently under construction and another 1000 + in the planning stages. Approximately 800-850 new properties were built annually over the last 3-4 years across the US. Due to new developments and conversions of existing retail and warehouse boxes, developers have been aggressively building in submarkets where demand exists. In many cases, they are experiencing lease up rates as projected. We’re also seeing newly developed properties not performing as projected, due to negative market influences.
Despite recent drops in interest rates, along with the FED forecasting an interest rate drop of 75 basis points by year end 2019, oversupplied self storage markets are now transacting at the same or at higher cap rates than 2-3 years ago. Pricing has thus remained the same or has dropped. This is somewhat counter intuitive to a normal accelerating investors trend, but it emphasizes the impact on transaction values from oversupply. Markets such as Charlotte, Raleigh-Durham, Dallas-Ft Worth, Houston, San Antonio, Denver, Atlanta, Tampa, Nashville and others have been cited as over supplied markets with accompanying year over year street rate declines of 2.9% for standard sized climate-controlled units.
However, many other markets are experiencing population growth and despite the general market oversupply. There are tenant demands, in many submarket pockets which remain underserved. Those underserved submarkets, within larger over supplied MSA’, will transact at more aggressive cap rates providing the right buyer(s), are introduced to the properties. Large operators will transact at higher prices if they know the available portfolio is within geographical distances to their existing stores, allowing for operational efficiencies and higher profitability. They will also transact if new entry into a market fits their long-term investment objectives. Typically these groups are poised to use lower cost acquisition funds to support more aggressive transactional pricing.
Transacting today, more than ever in the past, requires full understanding of a facilities fit within the market, the local and regional market dynamics, and an understanding of the right investor pool to contact to purchase your property. Contact Thomas Gustafson (Thomas. Gustafson@colliers.com or 216.409.3186) or Matt Davis (Matt.Davis@colliers.com or 440.570.9003) today for a Market Valuation of your property or portfolio of properties. We transact in the US and internationally.