Seattlemay be known for dreary weather, but the Emerald City has plenty for the self-storage industry to like other than coffee.
Starbucks isn’t the only big employer to call the region home and employ lots of people. Others include Microsoft, Amazon, Expedia and Nordstrom. And Boeing, although its headquarters flew off to Chicago several years ago, maintains a big presence in the region.
Tim Garey, a director at commercial real estate firm Cushman & Wakefield in Portland, OR, noted that average household income in the Seattle metro area—at more than $50,000 a year—is “really strong.”
Furthermore, jobs abound. The unemployment rate in the Seattle-Tacoma-Bellevue metro area has been trending significantly below the national unemployment rate of 7.3 percent, according to the U.S. Bureau of Labor Statistics. In August’s preliminary jobless figure was 6.1 percent.
John Eisenbarth, vice president of operations at West Coast Self-Storage, said a strong economy has helped fuel robust fundamentals in the Seattle self-storage business. Eisenbarth’s company operates facilities in the Seattle area.
“The economy is getting better, and that definitely bodes well for self-storage,” Eisenbarth said. “We are also seeing demand as well as move-in volumes increase over the last year, and seeing actual rate growth as well.”
Over-Supplied or Under-Supplied?
While Cushman & Wakefield’s third-quarter report on the Seattle metro area labeled the region as over-supplied, self-storage operators said the market is so large and varied that some submarkets within the area might be over-supplied while others actually are under-supplied.
Cushman & Wakefield’s Self Storage Data Services surveyed 281 facilities, or 47 percent of the market, for its third-quarter report. The report listed rentable square feet per person at 7.22 in the Seattle area, higher than the national average of 6.58.
The report puts average physical occupancy at 80 percent, down from 88 percent a year ago. Asking rental rates dropped 4.8 percent in the third quarter compared to the year-ago period, according to the report.
Still, Cushman & Wakefield’s Garey said the overall market is considered fairly strong.
“If you have a good product and a good location, you are going to do well,” he said.
New Facilities Popping Up
In fact, some industry players are beginning to build again after a hiatus that began around 2007 as the housing crisis put real estate into a tailspin.
Don Arsenault is vice president of the Washington Self Storage Association and a commercial investment adviser with Arsenault Realty Advisors. Some development of facilities is under way in the Seattle area, he said.
“The demand is there,” Arsenault said.
But the risk always exists that developers will overbuild and existing operators will get hurt. Plus, it’s hard to find good sites with strong demographics, he said.
Eisenbarth, whose company has 10 facilities in the Seattle area, said he’s aware of eight properties in the metro region that either have just opened or are in development—the most he’s seen in the past six years.
“Any new storage is a concern because it adds to the square footage in the trade area,” Eisenbarth said. “Some of these are in spectacular trade areas that have a need for self-storage,” he said. “I don’t know that any are being built in an oversaturated trade area.”
Tough Market for Acquisitions
The four publicly traded self-storage REITs probably would like to get a bigger foothold in Seattle as well, but there’s no evidence that existing facilities will be changing hands anytime soon.
“I think the REITs would love to get involved if they could,” Garey said.
However, he said, it remains to be seen whether investors will hold onto high-quality assets or decide it’s a good time exit the business. If self-storage owners already refinanced their properties and are making decent money, they may not have the incentive to sell, Garey said.
Barriers exist to adding new supply in Seattle, making acquisitions—when they can be done—quite attractive, Garey said.
“To get a new project done, you have to find the land, and then you have to decide if you can you afford it based on what you will charge in rent,” Garey said. “Some cities may not want self-storage. In Seattle, land is very expensive because of the geography with Puget Sound.”
More Demand Coming
Eisenbarth said West Coast Self-Storage’s properties in the Seattle area all are doing well, with performance up across the board over last year. Next year could be even better, he said.
“Overall, 2013 was a really good year for us,” Eisenbarth said.
Going forward, Eisenbarth expects operators in the region to see continued growth in their rental and occupancy rates.
Arsenault also thinks the future looks bright.
“I see more demand coming,” Arsenault said. “There are jobs and growth, and there’s been astounding growth in new apartments. And with that comes demand for self-storage.”