Currently, Real Estate Investment Trusts (REIT) as well as other groups, are attracted to the self-storage industry, which offers the opportunity for stable returns. In fact, bidding wars are breaking out across the country. Even though the targets are not oceanfront homes or luxurious office towers, there is great opportunity with self-storage facilities.
A prime example was seen recently in Orlando, Florida, where a 97,000-square-foot storage warehouse sold for almost $12 million. This facility was purchased by Westport Properties, Inc., which is a reputable operator of such facilities. However, to come out the winner, this company had to battle against 18 other potential buyers, several of those REITs.
For that particular deal, the seller, Vista Self Storage Co., made approximately $121 per square foot. Considering the premium is around $100 per square foot, it became clear that storage properties, at least in the Orlando market, are a hot commodity.
Hot Self-Storage Market
This is a great example showing the self-storage market is on fire, explained Michael Mele, senior director of the National Self-Storage Group with Marcus & Millichap. He also pointed out that this specific facility was not in top condition nor was it located in a high-demand area, so receiving 18 viable offers is astounding.
Keep in mind that self-storage is a very different sector compared to other types of commercial real estate. The reason is that this market is fragmented; roughly 80 percent of these facilities are owned by small investors or individuals and just 20 percent by corporations. Typically, portfolios are the prime focus of REITs, but with self-storage demonstrating huge deals, they are now getting a lot of attention.
Overall, several trends are proving to be beneficial to the self-storage sector. For instance, there is not a lot of new supply. In addition, the housing real estate market has boomed thanks to a growth in population and a stronger economy. With more people buying homes, there is actually more need for storage facilities, as people want a place to store extra belongings. However, there is also a greater number of people moving.
Another trend is tight supply. As occupancy of self-storage warehouses increase, it has become harder to find an open unit. Even when one is located, usually the rent has increased. From an investor’s perspective, this creates the perfect opportunity for stable returns. Overall, self-storage is an outstanding investment, even if more facilities are constructed.
Because demand for self-storage has remained high, even during tough economic times, investors see this as a recession-resistant opportunity. Considering that self-storage REITS have continually outperformed the broader stock market, it is easy to understand the draw.
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