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Self Storage Valuation: Time to Look in the Mirror

Written by: Ben Vestal Posted: 9/13/2017
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As indicated by the stock performance of the five self storage REITs in 2017, the self storage investment market is experiencing some headwinds. But even as the values of self storage investments have flattened, the demand in the private sector is remaining strong.

The Last Five Years

Over the last five years we have seen self storage values skyrocket to all-time highs, but the last 6-9 months have seen values level out or even soften due to the market’s perception of softening fundamentals, increasing cost of debt and slowing or flattening of rental growth. While it is comforting to know how well self storage properties have prospered from this extraordinary market, several questions hang over the future.

Wondering if high or higher values will last is really just a manifestation of wishful thinking and can probably answered best by the statement "They never have!"

It is important to remember that all good things must come to an end and while values of self storage assets are off the peak, they are still very strong by any measure.

What To Do?

First, decide what you want to do and be realistic. If you want to keep your property for at least five years or more and believe that you can maintain and grow your income over that time, then be sure you have captured a low interest rate loan for at least that term, keep a close eye on new competition and stay on top of the day-to-day operations of your property.

However, if your ownership horizon is less than five years or you are concerned about your property’s long-term ability to compete in your market, then selling could be an attractive option today. Values are within 20% of the all-time highs and capital gains rates are still at a very attractive level for the time being. The chances of cap rates going up (values going down) and the impact of new competition appear to be significantly greater than having cap rates decline (value going up) in the near term.

If you are wondering when to make the decision, my suggestion is to do so only when you are comfortable. While no one can predict where values will be a year from now, we can be sure that the “best of times” will not last forever.

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