are a driving force behind compressed cap
rates and are providing high returns to selfstorage investors overall.
During the past five years, very few
self-storage projects have been developed
across the country, which has allowed
existing properties to enjoy the benefts of
an improving economy and higher occupancies. As the economy continues to
improve, new development is picking up
in markets where fundamentals are strong.
Further fueling this trend is banks' willingness to consider more reasonable construction fnancing terms. Markets such as
Denver and Dallas are leading the way with
strong rental rates accompanied by high
occupancies and are enticing self-storage
developers to move forward with new projects or expand existing properties. Denver
currently has 16 self-storage projects on
the drawing board consisting of more than
1 million sf, all of which is scheduled to
come on line in the next 12 to 18 months.
Te combination of strong returns and
low default rates attracts investors to the
opportunity that self-storage afords.
Drivers of Success
As Wall Street and the investment community have taken notice of self-storage
as a viable commercial asset class, the
underlying dynamics continue to fuel the
sector's success. Key drivers of this performance include the fact that self-storage has
no need for tenant improvements or leasing commissions, which results in higher
net rental income than most commercial
real estate alternatives. Te additional low
maintenance requirements also contribute
to increased bottom line performance.
Te generally large tenant base and shortterm nature of self-storage leases allow
owners to react quickly to changing market
conditions and also protect owners from
long-term vacancies that occur in other commercial real estate assets. In addition, self-
storage has a higher 10-year average return
than any of the major property sectors.
Because of these operating characteristics
and the fexibility short-term leases provide
the operators, self-storage continues to be
underestimated by many investors.
With solid past performance and upward
trending occupancies and rental rates, selfstorage has captured the attention of large
institutional investors as well as regional
and small investors. Te rising star of commercial real estate industry may not shine
forever, but it appears it to be on a favorable
course for the foreseeable future.
C. William Barnhill, CCIM, is president of
Omega Properties in Mobile, Ala. Contact
him at barnhill@selfstorage.com. Ben Vestal
is president of the Argus Self-storage Sales
Network, a nationwide affiliation of commercial real estate brokers who specialize in selfstorage transactions. Contact him at bvestal@
argus-realestate.com.
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