The Real Deal New York

Thinking inside the box: Self-storage firms ready to pounce

City developers have 2-3M sf of space in the pipeline
May 09, 2016 01:49PM

The CubeSmart facility at 945 Atlantic Avenue in Prospect Heights

Despite New Yorkers’ perpetual shortage of space, the city has a relatively sparse supply of self-storage facilities, offering an opportunity for savvy real estate investors, experts say.

There is about 1.5 to 3 square feet of storage space for every New York City resident, compared to about 7 to 8 square feet per person on average nationwide.

“It’s the best storage market in the world because it has this incredible density of population,” Tim Martin, CFO of storage space manager CubeSmart told the Wall Street Journal. “And you have a lot of people living in small spaces who move around a lot.”

About 2 to 3 million square feet of self-storage space are currently in the development pipeline, Cushman & Wakefield’s Marc Nakleh told the Journal.

Rental rates have increased by an average of 18.9 percent since early 2012 to about $301 a month for a climate-controlled 10-by-10 unit, according to commercial data company Reis Inc.

The high levels of demand – as well as the city’s sky-high per-square-foot rents – have also drawn in massive real estate players such as Toronto-based Brookfield Asset Management, which recently bought Simply Self Storage and other operators for about $1 billion. Its subsidiary, Brookfield Property Partners, is the developer behind the massive Manhattan West complex.

“Seasoned owner-operators have come from other markets to New York that weren’t here 10 years ago,” Marc Slayton, CEO of Post Management Self-Storage, told the paper.

With all the recent units hitting the market, occupancy rates have fallen from 88.2 percent in the first quarter of 2015 to 85.7 percent in the first quarter of 2016, according to Reis data. Still, experts told the Journal demand far exceeds supply in New York.

Meanwhile, Mayor Bill de Blasio and City Council Speaker Melissa Mark-Viverito have proposed tightening zoning regulations around self-storage because of the relatively small number of jobs the properties generate. [WSJ]Ariel Stulberg