5 Takeaways From CBRE's Q3 Self-Storage Survey
In its latest Self-Storage Survey, CBRE interviewed more than 50 industry professionals—from buyers and brokers to investors and lenders—about the state of the self-storage market as of Q3 2016. Here's what the firm found:
1) Q3 Cap Rates Continue To Decline
Cap rates dropped to an average of 5.64%, down 10 basis points from Q4 2015. As investors' interest in the sector continues to grow and the divide between average cap rates and 10-year Treasuries increase, cap rates in self-storage will remain on the decline.
2) Interest Rates Not Likely To Impact The Industry
The spread between cap rates and 10-year Treasuries continues to surpass past levels, suggesting that if cap rates continue to compress, the self-storage sector may not be as impacted by impending interest rate hikes as core real estate sectors.
3) Market NOI Segregation Persists
Class-A, B and C properties are seeing a great disparity in net operating income. Class-A properties are seeing an NOI of $10/SF and higher, whereas Class-B properties range from $6 to $10/SF, and C-class NOI remains under $5/SF.
4) Rental Rates, Absorption Time On The Decline
The rate at which rents grow has been on the decline since 2015, dropping to 3.55% currently. Average absorption time dropped to 27 months, a positive indicator that market conditions are somewhat healthy and developers are making good site-selection choices.
5) Profit Factors On The Rise
Profit margin based on cost increased drastically thanks to a combination of new construction and direct costs. The sector has reached a range of 15% to 50%, with the average of 25%, its highest profit level since CBRE started the survey 12 years ago.