What has always been referred to as a recession proof industry, self storage should now be considered as recession resistant. Self storage has always fared well in good times and bad and has always had the honor of having the lowest default rate of any sector of commercial real estate. This recession has been a challenge for every industry and every form of real estate. Self storage hasn't been exempt this time around and has experienced some declines in occupancy and value. However, not to the extent other commercial real estate sectors have, in particular office and retail which are both closely tied to employment levels, consumer confidence, etc.
While occupancies have dropped a little it appears they have stabilized over the past year. Transaction volume for the sale of existing facilities is considerably less today than what it was as recently as four or five years ago but not due to a lack of buyers. Demand for existing facilities exceeds the supply but we're seeing inventory rising as buyers and sellers are getting closer to equilibrium on current pricing. Cap rates are up from historic all time lows in early 2007 but they too have stabilized over the past six months. Combined, these factors tell us we may be at or near the bottom of the market.
This all bodes well for the overall market. Buyers will be able to find suitable acquisitions, sellers will find active and realistic buyers, operators should be able to cut back on their concessions and hopefully increase occupancies as the economy improves and jobs are added.
