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CommercialAppraiser.com
The official web site of Peterson Appraisal Group, Ltd.
6035 N. Northwest Highway, Suite 200
Chicago, IL 60631
Phone:773/763-6750 Fax:773/763-6492
E-mail:
PAG@CommercialAppraiser.com
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CHICAGO SELF STORAGE MARKET OVERVIEW
Development of self storage facilities began in the late 1960s by several industry pioneers. As the demand for self storage has increased, so has the need for facilities that supply it. This continued increase in demand has resulted in a doubling of industry size each decade since its beginning. This continued increase in demand has also made self storage one of the leading growth industries in the country. Recently General Electric purchased Storage USA which reflects the beginnings of a trend to consolidate the industry. According to Marcus & Millichap only 11% of The industry is controlled by the top 5 largest self-storage companies. This leaves nearly 32,000 facilities under private ownership. Consolidation of the industry will continue as competition increases. |
Downtown Chicago Office Market
Suburban Chicago Office Market
Chicago Industrial Market
Chicago Retail Market
Chicago Self Storage Market
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Self storage has proven to be one of the best performing real estate
investments. One of the best ways to rate this performance is by the
comparison to other real estate property types. National Development
Services, Inc. completed an in-depth study of the performance of office,
retail and self storage developments in Texas, Oklahoma, New Mexico,
Colorado, and Louisiana over the past 10 years. The study focused on the
failure rate of those developments that opened between 1980 and 1987 and
were operating during the economic recession in those states in the mid 1980s.
The results of the study were a failure rate of 58% for multifamily housing,
63% for offices, 53% for retail and only 8% for self storage. The number of
self storage facilities that ended up for sale in the FDIC or RTC real estate
portfolios were substantially less than other real estate properties. Of the 8%
of self storage failures, a considerable number of businesses were taken back by
financial institutions because they were collateral for loans on other real estate.
The substantial difference in success between self storage and other real estate is attributed to several key elements. During times of economic expansion, businesses thrive, employment opportunities increase and the sales of new and existing homes start to climb. The typical self storage facility realizes this increase in the number of on the move residential customers, as well as an increased volume of commercial tenants. Conversely, when the economy begins to falter, the same happens to business, employment and real estate. However, a downturn still causes the same mobility that often benefits self storage when people begin relocating or selling their homes and moving into smaller homes or apartments. Businesses down size and look to self storage for a more economic means of storing inventories or records. A serious downturn does have a negative impact on self storage, but not to the extent of other real estate. During downturns, multifamily occupancies can drop as much as 25%, while office and retail occupancies drop as much as 30%. These office and retail tenants are businesses that have either failed, downsized or relocated. This is lost income to these properties types which is not recovered until the market economy improves. Self storage will also experience an initial drop down in occupancy, usually averaging about 15 to 20%. However, the typical leveraged self storage property has a break-even occupancy rate between 60 and 72%, compared to 80 to 90% for leveraged multifamily, office and retail properties. This indicates the room for absorption of market declines is greatest for self storage facilities. According to the Marcus & Millichap Self Storage Research Report dated February 2003, the north central United States submarket added 600,000 square feet of storage space in 2002 compared to 1.3 million square feet in 2001. Almost 270,000 square feet was added to Illinois in 2002. Even with Illinois higher construction levels, however, it leads the region with 92 percent occupancy level (versus 85 percent for the overall north central region). Occupancy levels vary by season with an average low of 78 percent in the winter to a high of 88 percent during the summer (in the north central region). Construction of new facilities is expected to continue to decline in the face of increased competition, zoning restriction, and higher land costs. Marcus & Millichap reported that the average rent for 5x5 units increased 12% in 2002 to $30.00 per unit. This average rental for the north central region is still below the national average of $32.50 per unit. The average rental for 10x10 units increased about 6 percent to $54.50 per unit. A 10x20 space also grew around 6 percent to $80.00 per unit (versus $98.00 per unit for a national average). The average capitalization rates have remained steady between 10 and 10.5 percent. In conclusion, the advantages for investing in self storage have been and will continue to be the key elements for its success. The industry will continue to mature along with the demand for its use. New development is expected to decline over the next year which should help stabilize occupancies and strengthen asking rents. Demand of self storage facilities should be strongly given the minimal management requirements and the somewhat higher returns the facilities often generate compared to other real estate products. |
CommercialAppraiser.com
The official web site of Peterson Appraisal Group, Ltd.
6035 N. Northwest Highway, Suite 200
Chicago, IL 60631
Phone:773/763-6750 Fax:773/763-6492
E-mail:
PAG@CommercialAppraiser.com
© 2007 Peterson Appraisal Group, Ltd.