Demand for self-storage units in South Florida has not yet kept pace with the surge of construction, a newly released report shows.
According to a semi-annual report from Marcus & Millichap, vacancy rates in Miami, Fort Lauderdale and West Palm Beach are expected to increase for a third consecutive year to 7.8 percent, up from 7.3 percent year-over-year.
Michael Mele of Marcus & Millichap says market is “teetering [on] the edge” of the cycle.
“Now may be a good time to sell, or wait for the next cycle to develop,” Mele said. “Rental rates are going to go down, which could mean a decrease in property values.”
In Miami, developers are expected to complete 1.65 million square feet of self-storage space in 2018, with nearly 1 million square feet delivered in the second half of this year. At that pace, completions are expected to surpass the 1.7 million of inventory delivered during the past two years combined, according to the report.
Amid rising vacancies, Miami’s average asking rent dipped by 8 percent over the past 24 months to $1.39 per square foot, according to the report.
Last week, a partnership led by Carlyle Group sold three recently completed self-storage facilities throughout Miami-Dade County for $100 million.
“That price per square foot was incredible for properties that weren’t even leased-up,” Mele said.
Construction deliveries are even higher in Fort Lauderdale. The city is expected to see more than 2.4 million square feet of new storage space delivered by the end of the year, according to the report. The uptick follows a sluggish year in 2017, in which less than 750,000 square feet of self-storage was completed.
As of the end of June, developers completed 994,000 square feet, and an additional 1.7 million square feet is slated for completion this year, according to the report.
Average asking rent in Fort Lauderdale dipped 7.4 percent over the past two years. Still, the area remains the most expensive self-storage market in South Florida. By year end, the average asking rent is expected to be $1.47 per square foot.
Among recent sales, Extra Space Storage paid nearly $25 million, or about $210 per square foot, for a five-story self-storage facility at 1850 Miami Road in August.
West Palm Beach
In West Palm Beach, developers completed 330,000 square feet of self-storage space during the first half of this year. An additional 520,000 square feet is slated to be completed during the second half of the year, according to the report.
Rents in the area are more stable. West Palm Beach’s average asking rent has hovered at $1.28 per square foot for two years.