11/22/2023 0 Comments Move it storage on ayersThe Producer Price Index for self-storage facilities - which has historically exhibited a near-perfect correlation with rent growth - illustrates this incredible turnout along with the more recent moderation. Stumbling into the coronavirus pandemic with challenged fundamentals and an outlook for near-zero growth amid oversupply challenges, self-storage demand came roaring back to life beginning in late 2020 as booming housing market activity amplified pre-existing demographic tailwinds to drive record occupancy levels and double-digit rent hikes. The three largest REITs - Public Storage, CubeSmart, and Extra Space - operate relatively higher-rent portfolios in more primary markets, while Life Storage, National Storage, and Global Self Storage operate facilities with lower rents in secondary and tertiary markets. Revenue and expense management technology, brand value, and cost of capital have historically given these REITs a competitive advantage over private market competitors and smaller brands. The self-storage industry remains fairly fragmented with these six REITs owning roughly 20% of the total square footage, but these REITs also provide third-party management services to another 5% of storage facilities. One in ten US households rents a self-storage unit, and 70% of self-storage customers are residential while 30% are businesses. There are roughly 50,000 self-storage facilities in the United States, and proximity to one's home is typically cited as the most important feature. Self-Storage REITs defied expectations to the upside as comprehensively as any real estate sector during the pandemic - delivering cumulative earnings growth of over 50% since 2019 - but the previously red-hot sector appears to have hit a soft patch in late 2022 as the anticipated post-pandemic demand normalization was accelerated by icy-cold housing market activity and pressure from elevated supply growth. In the Hoya Capital Self-Storage REIT Index, we track the five major self-storage REITs, which account for roughly $100 billion in market value: Public Storage ( PSA ), Extra Space Storage ( EXR ), CubeSmart ( CUBE ), Life Storage ( LSI ), National Storage ( NSA ), along with micro-cap Global Self Storage ( SELF ). This is an abridged version of the full report and rankings published on Hoya Capital Income Builder Marketplace on January 24th. I do much more than just articles at Hoya Capital Income Builder: Members get access to model portfolios, regular updates, a chat room, and more.Patience will be required over the next several quarters as expectations adjust to the post-pandemic normalization, but we continue to like the longer-term prospects for the storage sector given the 'stickiness' of demand, strong balance sheets, low cap-ex needs, and impressive operational track record.We’ve seen some encouraging hints at a housing demand recovery in recent weeks, but we don’t think this soft-patch for storage REITs is fully discounted, potentially providing better buying opportunities later this year.After delivering incredible cumulative rent growth of 30% from mid-2020 to mid-2022, preliminary earnings metrics showed a pronounced dip in occupancy rates and new lease rates late in the fourth quarter.Rental market turnover finished 2022 near historic-lows while home sales also dipped to decade-lows.
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