Aaron Swerdlin, executive managing director with NGKF capital markets, based in Houston, sees a strong year ahead for the self-storage sector. Swerdlin, who has more than 20 years of experience in the industry and in the past worked in the self-storage groups at HFF and CBRE, as well as at Storage Investment Advisors, represents clients including Clarion, CubeSmart, GE Capital/Storage USA, Public Storage and Storage Choice, among others. Over the course of his career, he closed approximately $4 billion in self-storage transactions. Below are his five takeaways for the sector in 2015.
- Year-over-year NOI growth will be surprisingly strong: With limited new supply coming on-line, all-time-high occupancies and limited rent concessions, 2015 will be the strongest year ever for revenue per available sq. ft.
- New development will continue to be in the headlines, but won’t have a material impact on sector performance: With cap rates at all-time lows, development continues to make sense, even at all-time low returns on cost. But unless banks begin to make low-/no-equity construction loans, over-supply will not be widespread.
- Occupancy will decline slightly, but that’s a good thing: 2014 [marked] an all-time record high occupancy, at over 90 percent. With more confidence in what drives pricing equilibrium, operators will benchmark more off achieved rental rates rather than target occupancy, so that leasing will yield [higher] rents than in 2014.
- The acquisition field will extend beyond the REITs: With an abundance of large portfolio transactions feeding the institutional appetite [in the last three years], there’s been little room for smaller, local and regional operators, to deploy capital in the transaction market. A combination of REITs [pulling] back a little and deal size shrinking, 2015 will [present] a more balanced and diverse roster of buyers for marketed deals.
- Private equity will enter the picture: Although most of the large portfolios that were likely to trade fee-simple already traded between 2011 and 2014, and most of the fee-simple transactions in 2015 will be one-offs and small portfolios, there will be a very large (maybe more than one) joint venture/recapitalization deals that will give entry to the product type to brand name private equity firms.