Self Storage Investor Survey

Transcription

1 CBRE VALUATION & ADVISORY SERVICES Self Storage Investor Survey

2 Scope of Research In this quarter, we have surveyed market participants about a wide variety of data points including the usual cap rate, yield rate and growth rates. Additional information includes trade area size, absorption time, marketing time, profit on costs, optimism index and other metrics. We interviewed more than 50 market participants including buyers, brokers, owners (small and large operators including REITs, national and regional owners), investors, lenders and REIT analysts. Most interviews were either in person or by telephone, including conversations at the Self Storage Association Investment Summit in July, All interviews referenced in this report occurred in the 3Q The CBRE Self Storage Investor Survey is published 3Q to reflect the robust spring and summer seasons, and 1Q to reflect the slower fall and winter seasons common to self storage. The results of the data this quarter are also compared to a 10 year time series for trend analysis, summarized in the table at the end of this report. For more information on our self storage valuation practice, visit: cbre.us/selfstoragevaluation PAGE 2 R. Christian Sonne, CRE, MAI, FRICS National Self Storage Valuation Leader chris.sonne@cbre.com Nick Walker Executive Vice President Self Storage Advisory Group nick.walker@cbre.com

3 Key National Observations: Cap rates have remained in a level range, but the average cap rate increased 8 bps since our last survey 3Q Since 2015, the average cap rate range has been between 5.74% and 5.60%. Self storage cap rates spread to apartment cap rates increased to 42 bps, closer to the eight year average of 46 bps and up from a narrow spread last year of 20 bps. The spread between the 10 Treasuries is currently 273 bps, compared to 320 bps in 3Q 2017, and compared to a 10 year average spread for self storage of 403 bps. The lowest spread of 4 bps was in Market sentiment is that cap rates will remain level in the sector with a slight increase of bps or less over the next year due to anticipated interest rate increases. Market Segmentation by Investment Quality 3Q 2018 Class A Class B Class C Discount Rate (IRR) % 8.05% % 8.85% 9. 10% 9.55% Capitalization Rate % 5.00% % 5.75% % 6.75% Residual Cap Rate % % 6.00% % 7.00% Source: CBRE Self Storage Investor Survey, Market segmentation remains among class A, B and C properties. In general, class A properties have an NOI/SF at $10/SF or higher; class B are in a range of $6-$10/SF; and, class C is generally less than $5/SF. However, there remain variances among markets. Class C cap rates continued to decline, suggesting investors are considering secondary and tertiary markets for higher yield. Internal Rate of Return declined 2 bps from 3Q 2017, but remain higher than data in 2016 suggesting increasing emphasis on cash flow in discounted cash flow analysis. In general, 60% or less of total value is a function of the reversion in the sector. PAGE 3

4 Key National Observations (Cont): Forecast rental growth rates remain flat at, due to revenue enhancement models. The growth rate is robust compared to other CRE sectors, but less than prior years for the self storage sector because respondents are using ten year hold periods most often for discounted cash flow models that consider both boom and bust cycles. Expense growth factors from our survey are 3%, or down slightly 2 bps from 3Q Both trade area size and demand of SF per person remain relatively level. A 3.18 mile trade area radius is typically utilized for suburban self storage, with urban markets being smaller and rural markets being larger. Some argue that the Internet may have increased trade areas, while others focus on household characteristics in a 1 mile radius. The average estimate of demand of 0 SF/person in the US, up slightly. Respondents continue to express concern of new supply coming to the market. Average absorption time increased to 30 months, an increase of one month from one year ago. In the survey, described market conditions as being at equilibrium; 28% as under-supplied; and, 32% as over-supplied. Most respondents thought selling was the best strategy at present, reflecting an optimism index average of (1-10 scale), the second lowest index since We received many comments regarding self storage as a safe haven investment during economic downturns. Marketing time (average time estimated to sell a property) increased slightly to 4.2 months. Brokers report continued sales volume, but some slowing in transactions. Profit factors decreased slightly to 24% (profit on costs without land value). Indirect costs averaged 15% of direct costs, virtually unchanged from one year ago. Discounted cash flow is used by 82% of investors surveyed, as the preferred method of analysis for self-storage decisions. This continues a 10 year trend in growing usage of DCF s for self storage analytics. PAGE 4 Market sentiment is that cap rates will remain level in the sector with a slight increase of bps or less over the next year due to anticipated interest rate increases.

5 Treasury Interest Rate & Self Storage Cap Rates 12% 10% 8% 6% 4% 2% PAGE 5 Average Self Storage Cap Rate Spread Q Source: CBRE Self Storage Investor Survey, 10-Year Treasury Interest Rate Source: CBRE Self Storage Investor Survey, %

6 Historical Optimism Index (1-10) Source: CBRE Self Storage Investor Survey, 2018 CBRE, Inc. Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

7 Self Storage Time Series Survey Research Trade Area (Miles) Demand (SF per Person) Capitalization Rate Absorption Time (Months) Marketing Time (Months) Profit (on cost only) Optimism Index (1-10) Market Conditions Under-Supplied: Over-Supplied: Equilibrium: Strategy Buy: Sell: Build: Discounted Cash Flow Usage: Holding Period: Cost of Sales: Discount Rate (IRR) Rental Growth Rate Expenses Growth Rate Terminal Cap Rate Spread to Cap Rate (Basis Points): 3Q Q Q % % % % % % % % % % % % % % % % % % 4.50% % 5.68% % % 5.60% % % 5.64% % - 8.% 5.74% % % 5.90% % % 6.% % % 6.75% % % 7.30% % % 7.75% % % 8.75% Months Months Months Months Months 3-6 Months Months Months Months % - 50% 24.00% 4.35% 15% - 50% % 15% - 50%.00% 19.05% 10% - % 20% 10% - % 20% 5.00% 10% - % 20.00% 14.29% 10% - % 17.50% 16.67% 10% % 20.00% 10% - 15% 12.50% % 10% % -5.67% % % % 8.00% % % % % % 28% 32% 27% 28% 45% 39% 21% 38% 38% % 30% 45% 15% 50% 35% 10% 60% 30% 10% 65% % 37% 21% 36% 38% 26% 43% 24% 33% 55% % 55% % 52% 24% 24% 47% 35% 18% 43% 17% 45% 15% 60% 82% 81% 2.01% 75% 1.80% 70% 70% 61% 52% 2.80% 41% 33% 4.00% 36% 4.00% 7.5% - 11% 8.73% % % 8.75% % % 8.63% % % 8.75% 8.00% - 10% 9.00% 8.% - 10% 9.% % % 10.% 9.50% % 10.50% % % 10.00% % % % % 3.55% % 3.60% % % 3.% % 0% % 3.% 0% % 50 0% % 5000% -2 2% 1 1% % -6 3.% 4.75% % 5.92% % % 5.86% % % - 8.% 6.01% % % 6.15% % % 6.50% % % 7.00% % % 7.50% % % 9.00% % % 9.00% % SOURCE: CBRE