In the face of heightened uncertainty over the past two years, self storage has become one of the preferred commercial real estate property types for investors, along with the industrial and multifamily sectors. Thanks to its counter-cyclical nature, the storage industry was able to capitalize on pandemic-driven changes, such as the ability to work from home, accelerated migration trends and businesses turning to larger storage units for logistics and distribution purposes.
The COVID-19 crisis has prompted residents to leave behind pricey gateway markets in search of lower-cost, lower-density cities. This trend has especially boosted the popularity of markets in the Southeast and Southwest, or Sun Belt metros, establishing strong fundamentals for both the housing and self storage sector.
While storage rent growth started to moderate in recent months, most Sun Belt markets continued to register double-digit rent increases for the average 10×10 climate- and non-climate-controlled units, above the 7.4 and 7.6 national average, year-over-year in January. Owing to this strong performance, developers are also keen on adding new supply to these markets, despite sluggish pre-pandemic development activity.
In the table below, we highlighted the top five emerging self storage markets across the U.S. Unsurprisingly, metros across the Sun Belt ranked the highest, based on rent growth, development activity and demographic trends.
|Rank||Metro||Total Inventory (Rentable Sq. Ft.)||Under Construction (Rentable Sq. Ft.)||Y-o-Y Rent Growth Jan-22 NON CC||Y-o-Y Pop Change – 3 Mile Radius 2019||Overall Score|
5. Pensacola, Fla.
Pensacola has been steadily expanding over the past few years, with its population increasing by 13.6 percent between 2010 and 2020, according to the U.S. Census Bureau. With Florida becoming a prominent relocation destination since the onset of the health crisis, the metro’s population is expected to maintain steady growth.
Thanks to favorable demographic trends, multifamily developers continue to add new projects to the metro’s inventory. In 2021, completions hit more than 2000 units, the highest number over the past five years. Despite record deliveries, Pensacola absorbed around 2,400 units last year, with the occupancy rate hovering in the high-90 percent range. Additionally, rents were up 20.5 percent, reaching an average of $1,472, year-over-year in November 2021.
Strong demographic and housing fundamentals also underscore the need for self storage. According to a Marcus & Millichap report, markets with robust home prices and apartment rents recorded low vacancy and high rent gains in the storage sector. Self storage rent growth was especially pronounced in Florida, the report highlighted.
READ ALSO: Top 5 Emerging Multifamily Markets
Indeed, Pensacola recorded double-digit year-over-year rent growth for the average 10×10 climate-controlled units every month between February 2021 and January 2022, with non-climate-controlled units registering at least 6 percent growth each month within the same time frame. As of January 2022, annual street-rate rents increased 12.1 percent for the standard 10×10 climate-controlled and 6.1 percent for non-climate-controlled units of similar size.
The record performance prompted developers to bet on new storage projects. In 2021, a total of 711,678 square feet of storage space came online, marking a 63.2 percent increase over 2020 deliveries. As of January, the metro had some 492,678 square feet of storage space under construction and 578,213 square feet in the planning stages, representing 11.3 percent of the metro’s total inventory.
4. Reno, Nev.
Over the past few years, demand for self storage space across Nevada has been driven by relocating retirees looking for places with low tax environments. However, thanks to its affordable costs of living and business-friendly environment, Reno has also become an attractive place for residents priced out of major coastal cities. The metro’s population increased by 15.3 percent between the 2010 and 2020 U.S. Census.
Besides the high demographic growth and subsequent housing demand, Reno’s self storage market is fueled by the metro’s strong industrial sector boosted by its proximity to major markets, such as Los Angeles and the Inland Empire. As industrial supply is still lagging demand, businesses turn to storage units to fulfill their short-term need for space.
Despite an existing storage inventory of 15 net square feet per capita, double the 7 national figure, Reno experienced consistent rent growth over the past year. As of January, annual street-rate rents rose 5.3 percent for the average 10×10 non-climate-controlled and 8.1 percent for climate-controlled units of similar size.
Although stock expansion was sluggish in Reno before the health crisis, construction activity picked up in 2021, with completions reaching 530,178 square feet. Developers are set to continue at this pace in 2022: As of January, there were roughly 1 million square feet of projects under construction or in the planning stages, accounting for 13.3 percent of Reno’s existing inventory.
3. Jacksonville, Fla.
Jacksonville is yet another Florida market with a robust population and economic growth driven by a tax-friendly environment and attainable cost of living. The metro gained 28,379 residents in 2020, up 1.8 percent year-over-year. Over the previous decade, Jacksonville’s population increased by 17.7 percent, according to data from the U.S. Census, a Yardi Matrix report shows.
The jobless rate stood at 3.3 percent in January 2022, down 210 basis points from the 5.4 percent recorded in January 2021, according to the Florida Department of Economic Opportunity. In the 12 months ending in January, Jacksonville added 29,000 new private-sector jobs, with most jobs recorded in the professional and business services (10,400 jobs), followed by leisure and hospitality (6,900 jobs).
With positive employment and demographic trends, self storage also began to soar. Since May 2021, Jacksonville recorded double-digit annual rent growth across all unit types. As of January 2022, street-rate rents increased 16.7 percent for the average 10×10 non-climate-controlled and 14.5 percent for climate-controlled units of similar size on a year-over-year basis.
Last year, storage developers completed eight projects encompassing more than 800,000 square feet, significantly above the roughly 300,000 square feet completed in 2020. As of January 2022, Jacksonville had some 622,713 square feet of storage space under construction and 635,193 square feet in the planning stages. Although development activity is expected to slow down, deliveries are set to come in the 500,000 to 600,000-square-foot range over the next three years.
2. Austin, Texas
Texas markets felt the brunt of the self storage development boom in 2018, leading to a significant imbalance between supply and demand, putting downward pressure on rent rates. Most metros, including Austin, were forced to limit their development pipelines to help restore market equilibrium.
However, pent-up demand created by the pandemic and continuous in-migration amid accelerated corporate relocations kept Austin’s self storage fundamentals healthy over the past couple of years. Austin was the fastest-growing city in the nation, gaining 68,822 residents in 2020, accounting for a 3.1 percent growth year-over-year, significantly above the 0.4 percent national rate, according to data from the U.S. Census, a Yardi Matrix report mentioned.
Although last year developers in Austin completed only four facilities, adding roughly 300,000 square feet to the market’s inventory, construction activity accelerated in 2022. As of January, the metro had 27 projects under construction or in the planning stages, accounting for 7.9 percent of total stock. Yearly completions are forecast to hit 1 million square feet by 2026, however, given the supply shortages and high construction and labor costs, some projects might get delayed keeping the market tight for existing properties.
While rents are coming off the record highs registered during the summer of 2021, street-rate rents rose 9.8 percent for the average 10×10 climate-controlled and 11 percent for the non-climate-controlled units of similar size, year-over-year as of January. With continued migration and relocation trends, the new supply will likely get absorbed fast maintaining healthy market fundamentals.
1. Sarasota – Cape Coral, Fla.
Southwest Florida is another region with bustling real estate fueled by relocating businesses and residents looking for more affordable places. Cape Coral’s population grew 25.7 percent from 2010 to 2020, U.S. Census data shows, while Sarasota County recorded a 14.7 percent uptick over the same period. Furthermore, in 2021, Cape Coral was listed among the country’s top 10 most promising real estate markets, according to the National Association of Realtors, Business Observer reported.
The region’s growing population and expanding real estate market will bode well for the self storage sector. Sarasota – Cape Coral recorded the highest rent growth out of all the markets on the list. As of January 2022, street-rate rents surged 18 percent for 10×10 climate-controlled and 16.1 percent for non-climate-controlled units of similar size.
Sarasota – Cape Coral also recorded high development activity in recent months. As of January, the region had some 1.2 million square feet of storage space underway and nearly 1.8 million square feet in the planning stages. The construction pipeline accounted for 16.5 percent of the region’s total stock. Yearly completions are projected to hit 1 million square feet over the next five years.
Working with Yardi Matrix data, we filtered out all metros with 2 million or more residents, leading to a 62-strong metro list. Then, we decided on a series of significant data points that would separate the best-performing markets from the rest. We looked at the population growth rate within a 3-mile radius in 2019 utilizing U.S. Census data. Other data points included in this ranking are: Total completed rentable stock, year-over-year rent increases as of January 2022, completed inventory available per capita, projects under construction and in the planning phases as of January 2022, and forecast completions in 2022. We then compared the 62 markets based on the performance of these data points and eventually assigned them a final score that indicates their position in our ranking.