By Barbra Murray
The self-storage industry has experienced a coming of age over the last decade, according to Newmark Knight Frank’s Self-Storage Group, which recently released an introductory report to a four-part series on the evolution of the property type.
Over the last few years, the self-storage industry has seen an increase in access to debt and equity capital, advancements in technology and a more prominent position on the investment community’s radar. Demand is also on the upswing, which means the supply side has some growing to do. Per the report, the stock of self-storage facilities in urban areas will have to increase by 9 million square feet come 2022 to maintain the current level of square footage per person, which is nearly 5 square feet.
“Going into the project, I think we had a very specific expectation that we’d find that, in general, the urban markets were going to be undersupplied relative to the suburban markets in each of the 50 MSAs we studied. The final outcome did reflect that, on a square-foot per person basis, the suburbs generally have more supply than the more infill areas,” Aaron Swerdlin, a vice chairman with Newmark Knight Frank, told Commercial Property Executive. “However, the margin was negligible as it relates to our expectations going into the study: 4.88 square feet per person in the urban markets and 5.1 square feet per person in the suburbs. I personally expected that margin to be significantly wider.”
Same Market, Different Dynamics
The NKF report analyzes the country’s self-storage offerings far beyond urban versus suburban; when examining at MSAs, one has to look closely. Using Chicago as an example, Swerdlin points out that a new property in suburban Schaumburg, Ill., has zero impact on Lincoln Park, which neighbors downtown Chicago roughly 30 miles away. The Schaumburg facility, while not irrelevant in terms of supply and demand, would have little meaning in the context of the Chicago MSA. The supply/demand dynamic can vary right down to the neighborhood, as self-storage is a three-to-five-mile business, and the radius can be even smaller in leading metropolitan markets. Self-storage demand is, essentially, micro-market specific.
“As we worked our way through the project, it’s been very interesting to see the various dichotomies between the urban/suburban supply fundamentals and to see the dichotomies between cities and regions,” Swerdlin said. “The normative sociology behind demand really held no consistency throughout the top-50 MSAs.”
The four segments of the firm’s study will be released over the next several months, with each part centering on specific areas: urban markets; suburban markets; capital markets; and finally, a summary of the findings.