The self storage business has proved to be resilient in recent months, with improving rents across the U.S. Developers have started to slow their activity, with some 33 projects abandoned in August, possibly a reflection of economic uncertainty. A slowdown in development activity, however, could help oversupplied self storage markets to restore the balance between supply and demand.
As of August, some 147.2 million square feet of storage space was under construction or in the planning stages across the country, 8.8 percent of total stock. Although the new-supply pipeline grew by 20 basis points over the previous month, development activity remained flat or contracted in more than half of the 31 top markets tracked by Yardi Matrix. Below, we ranked the top five metros based on underway and planned space as a percentage of total inventory.
5. San Jose
As a high barrier-to-entry market, with strict zoning regulations and limited land availability, San Jose’s storage sector has historically been underpenetrated. With 9.4 million square feet of storage space available, the supply per person is at just 4.7 net square feet, below the 6.6-square-foot national average. But as of August, San Jose had some 1.4 million square feet of storage planned or under construction, accounting for 15 percent of existing inventory.
Thanks to its tech-centric economy, San Jose is well-positioned to withstand the impacts of the global health crisis. More than half of its jobs are in office-using sectors, placing it among the metros likely to be least impacted by the consequences of shelter-in-place orders. Additionally, its lower-density population, compared to metros such as San Francisco or L.A., allowed San Jose to go through California’s reopening phases more easily.
Portland’s self storage market used to benefit from the metro’s steady job growth and an influx of residents priced out of more expensive West Coast markets. The metro’s self storage inventory has been gradually growing over the past decade. Last year it reached a new cycle peak in completions, with a total of 1.6 million square feet of storage space completed.
As of August, projects under construction or in the planning stages accounted for 15.2 percent of total stock, down 10 basis points month-over-month. This slight slowdown in development activity could benefit Portland, as its inventory per person is 6.9 net square feet, slightly above the 6.6-square-foot national figure. There were nine projects under construction and 18 in the planning phases, encompassing a total of 2.2 million square feet.
California’s capital has been steadily growing over the past few years, having gained 18,520 new residents in 2019, up 0.8 percent year-over-year and nearly three times the 0.3 percent national rate. Thanks to its diverse economy and a high percentage of jobs in the government and professional and business services sectors, Sacramento is well prepared to overcome an economic downturn.
Although Sacramento’s self storage market is somewhat oversupplied—the per-person inventory is 7.9 net square feet—developers have continued to pursue new projects. As of August, some 2.8 million square feet of storage space was under construction or in the planning stages, accounting for 15.8 percent of total stock, up 50 basis points over the previous month.
2. Las Vegas
Over the past few years, demand for self storage space in Las Vegas has been underscored by a consistent wave of retirees choosing to relocate. In 2019, Las Vegas added 35,068 residents, representing a 1.6 percent growth year-over-year, well above the 0.3 percent U.S. figure.
As of August, Las Vegas had around 2.8 million square feet of storage space under construction or in the planning stages, accounting for 16.2 percent of the metro’s 17.2 million-square-foot inventory. There were 21 projects planned and 14 under construction slated for completion by the end of this year or in early 2021.
1. New York City
Self storage developers were busy in New York City, with more than 12.3 million square feet of storage space under construction or in the planning stages. Nationwide, the metro has the largest existing inventory, encompassing more than 66.7 million square feet of storage space, yet the supply per person is around 3.4 net square feet. As of August, projects planned or under construction accounted for 18.5 percent of total stock. There were 100 projects planned and 64 under construction.
Due to zoning restrictions, recent changes made to the Industrial & Commercial Abatement Program and limited land availability, it’s increasingly challenging to build in New York City. However, thanks to its size and ever-growing population, the need for storage space will continue to persist.