Real estate investors in America are flocking to an under-appreciated sector of the market which has now become the hottest ticket to generate a good return.
Self-storage facilities are the biggest news in real estate for some time.
While many are looking to the burgeoning homes sector and the growing commercial real estate, many have been surprised at just how well self-storage is doing.
A year ago, investors saw yields of around 7% on self-storage real estate which is lower than the 9% experienced in the financial downturn of 2008 and 2009.
Real estate experts are now appointing to a deal signed between Acadia Realty Trust and Storage Post which will see even lower yield rates on such properties – to match those seen or more luxury buildings.
Storage Wars
The yield rate, or capitalisation rates as they’re known in America, is calculated by dividing the property’s annual net income by its purchase price to arrive at the building’s annual yield rate.
It follows that, the more an investor is willing to pay for a building, the yield rate will drop which means that values for self-storage real estate are rising.
This trend has been noticed by real estate investors and deals for self-storage facilities are becoming increasingly common.
Until recently no one took much notice of the self-storage industry which consists of around 55,000 properties across the US since many investors believed that its popularity ran counter to the country’s economy.
That’s to say, in a downturn more people look to store their property while an upturn they can afford larger properties or move to another part of the country.
The self-storage industry is also the focus of a popular TV programme called ‘Storage Wars’ which has helped push it into the spotlight.
Self-storage REITS
Investors will find that the rental and occupancy rates for self-storage facilities are generally very high at 80%, and in some areas are enjoying record-high occupancies of around 90%.
In addition, rents have been rising steadily over the year and more recently have been increased by 5% or more by landlords which has led to increasing cash flow.
There are four real estate investment trusts (REITs) which are publicly-traded in America and which account for £22 billion of the sector. They are Extra Space, CubeSmart, Sovran Self Storage and Public Storage.
All four firms have plans for growth and are buying up smaller facilities to enforce their dominance in the sector of real estate.
The firms also enjoy little competition since there is low supply, though more facilities are being built and meet demand though 200 facilities are currently under construction.
