Dream Storage Newsletter - February 2024

Monthly Newsletter

Since kicking off the new year, we have had numerous conversations with brokers, lenders, and industry operators. In this month’s update, we are excited to share the pulse on the self-storage investment landscape and real estate market.

Market Insights

Industry behemoth Public Storage recently reported Q4 2023 earnings with annual revenue growth of 4.7% and net operating income (NOI) growth of 4.1%. The impressive performance was achieved against the backdrop of declining street rates and is a testament to the resiliency of demand. Occupancy ended the year at 91.6%, a decline from 92.3% the year prior—however, still strong and in line with pre-pandemic averages. After “pulling forward” demand during the pandemic years, Public Storage has forecasted flat revenue growth for 2024 with a low of -1.0% and a high of +1.0%.

It should be noted the above data is based on stabilized properties which are assets that are already achieving market rents and occupancies. At Dream Storage, we target value-add properties with operational upside and significant growth potential.

On the capital side, equity remains abundant as there continues to be more investors than there are compelling opportunities. The debt market has begun to thaw with regional banks slowly beginning to lend again. Insurance companies continue to be active participants with surety of close. Credit unions are very competitive, as well.

Transactionally, the storage market can be characterized by discomfort rather than distress. Outside of several isolated instances, self-storage assets have continued to perform and remain in favor with lenders. This is in contrast to other property types such as office and multifamily which have made headlines with many assets in delinquency if not outright foreclosure. There has been industry chatter of storage owners facing default, but most have not yet resulted in delinquencies (with owners resorting to a variety of asset-saving strategies such as cash-in refinances, property sales, and warehouse lines of credit). For owners with strong balance sheets, these options may help them continue to avoid distress. For some, however, it will force their hand to sell.

Dream Storage’s Outlook

While transaction volume declined as much as 75% last year, brokers have shared that potential sellers have requested opinions of value at a torrid pace in 2024. Markets have shifted substantially since this rate hike cycle began in early 2022 and price discovery continues to play out with owners wanting to know what their buildings are worth today. We anticipate this will lead to a gradual increase in activity as the year progresses. At this time, there continues to be a large pricing gap between buyers and sellers, although it is narrowing.

If the Federal Reserve cuts rates as anticipated, we believe there will be a material increase in investment opportunities which we look forward to sharing with you.

The Dream Team