The demand for self-storage facilities, which boomed during the pandemic, is cooling off in cities like Atlanta and Phoenix where a glut of new supply has hit the market.
Street rates at self-storage facilities are dropping as operators lower rates to avoid occupancy declines.
However, this national trend hasn't put a dent in the value of self-storage properties in the outer boroughs of New York City, a market with a high percentage of renters and low vacancy rates that continues to attract investors in storage facilities.
The Carlyle Group is acquiring four NYC self-storage facilities—three in Brooklyn and one in Queens—in a $110M deal with a joint venture of SNL Holdings and Equity Resource Investments, PincusCo. reported.
The deal includes a Life Storage building, located at 87-16 121st in Queens, which traded for $50.3M—more than four times what the sellers paid when they acquired the facility for $11M in 2018.
Lake Success, NY-based SNL and Equity Resources Investments, based in Cambridge, MA, also recouped a large return on a self-storage property in Brooklyn in February, when Chicago-based investment firm Heitman bought a 97K SF facility at 1296 East 14th Street for $47M that had last traded for $19M in 2017.
In December, Long Island-based Blumenfeld Development bought two self-storage facilities in Queens from LSC Development in deals on sites that also saw a large jump in value from previous trades.
CubeSmart, a REIT that is one of the largest self-storage players in the U.S., reported in its first quarter earnings call this week that NYC remains its top-performing market.
"New York continues to be our top-performing market with consistent positive performance metrics across the boroughs and positive and improving performance in supply-impacted Staten Island and North Jersey," CEO Chris Marr.
"Our more urban-oriented markets such as the New York MSA and its Connecticut suburbs, Chicago and Boston experienced growth in year-over-year rentals," Marr added.
Despite large players like CubeSmart, Public Storage and Extra Space Storage, the self-storage sector remains fragmented as an asset class, with a majority of facilities owned by smaller operators who are more vulnerable to cost increases and shifts in demand.
The Self Storage Association estimates that three-quarters of the nation's 60,000 self-storage facilities are owned by small operators, many of them family businesses.