Storage REITs: When Business Is Too Good It Becomes A Problem
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- The operating efficiency and relative simplicity of the self-storage business is second to none in the real estate sector, where properties can breakeven at sub-50% occupancy rates with sub-par management.
- For self-storage REITs, the business is almost too good. Developers and new operators have flocked to the sector in recent years, adding new supply at a furious rate, weakening fundamentals.
- 2018 appears to have been the bottom for self-storage fundamentals, but 2019 will be another challenging year. We remain neutral, noting ample supply but solid demand tailwinds from household formations.
- With capital so plentiful, self-storage REITs have not been able to put their competitive advantages to work, but acquisition and consolidation opportunities will be plentiful over the next decade.
- It turns out that millennials buy and store stuff too. Strong demand from renter households and businesses has kept rents and occupancy generally flat in the face of ample supply.
