February 2023 Self-Storage Market Report

Southeastern Markets

Over the past few years, the self-storage industry has outperformed to become a significant participant in commercial real estate, becoming one of the country’s top investment classes. Self-storage still had a successful year in 2022, and is in good shape going into 2023, with minor softening in demand coupled with economic challenges. Street rates decreased in most markets across the country by the end of 2022, but to a minimal degree in several of the top metro areas, mainly in the Southeast. As individuals mitigate moving and return to offices following the pandemic, the growth of self-storage is expected to slow. This, in conjunction with increasing interest rates and cap rates, is causing development to slightly decline. If inflation continues to rise, self-storage will become more of a discretionary expense for tenants in middle-to-low income markets instead of a necessity. However, despite these factors, the transactional market still put up big numbers across the south.

Highlights

• Rental rates are expected to keep pace with inflation this year, so rent growth will likely be in the single digits.
• Alabama is home to over 1,000 self-storage facilities, offering more than 30 million square feet of storage space.
• Florida has approximately 2,602 self-storage facilities, covering 125 million square feet of storage space.
• Georgia is home to 1,502 self-storage facilities, covering 58 million square feet of storage space.
• Mississippi currently has 570 self-storage facilities operating across the state, offering 17 million square feet of storage space.
• Tennessee has roughly 1,232 self-storage facilities, offering 37 million square feet of storage space.
• North Carolina is home to 1,773 self-storage facilities, covering over 59 million square feet of storage space.
• South Carolina has more than 902 self-storage facilities combined with 29 million square feet of storage space.
• Louisiana is home to more than 947 self-storage facilities. These facilities offer more than 31 million square feet of storage space combined.
• Oklahoma has more than 937 self-storage facilities, offering more than 30 million square feet of storage space combined.
• Arkansas has more than 688 self-storage facilities covering 21 million square feet of storage space.

Rents | Vacancy | Construction

In December, Nashville, TN, was the only top Yardi Matrix metro with positive year-over-year street rate growth for both 10×10 NON-CC and CC units. Rates increased by 3.7 percent for 10×10 CC units and 2.8% for 10×10 NON-CC units.

The average asking rent for self-storage facilities is expected to stay between $1.30 and $1.34 per square foot, demonstrating strong demand and incentivizing landlords to continue to raise their asking prices. Although development is expected to slow in 2023, self-storage construction has significantly increased over the past few years, especially in the Southeast. Nashville has been one of the busiest self-storage development markets as builders scrambled to fill the gap left by the population boom. At the same time, the entire State of Florida has seen hundreds of facilities delivered in the last few years.

Sales

Following a record-high year for sales volume in 2021, the self-storage market remained very active in 2022, with demand for these investment opportunities continuing on to all types of buyers across the country. The year’s fourth quarter performance was hampered by interest rate increases, although overall sales were higher than in pre-pandemic periods. Transaction velocity did increase during the first, second, and third quarters of 2022. Although this shows significant investor confidence, the Federal Reserve is anticipated to raise rates once more, which could stifle deal flow in 2023. Out of the Southeastern markets, Florida saw the highest sales volume with $1.7B, followed by Georgia, North Carolina, and Tennessee. Oklahoma and Alabama are additional markets to keep an eye on, where more and more private investors are moving capital in order to avoid competition with institutional buyers.