Self-storage property occupancy is running at approximately 90% in the 50 major metropolitan markets at the end of the third quarter of 2017 and roughly at that level for all of 2017, according to REIS. Rent growth continues in all regions of the United States except the Southwest, which shows some rent weakness amid rising new supply. Self-storage loans remain one of the best performing asset classes in CMBS conduit lending, with a current delinquency rate of under 0.10%. With all these positive factors, developers are building new self-storage properties at a rapid pace, creating concern about overbuilding.
While demand remains strong, certain markets may see an inability to absorb all the new units. Already the Southwest is showing signs of rent weakness. Market watchers are eying Denver, Miami and Texas as markets at risk for overbuilding. According to STR, a Tennessee-based market research company, a total of 85 self-storage projects are in various phases of development in Miami. This total includes unconfirmed projects that have not yet been zoned or approved. Of these 85 projects, STR expects 43 to be completed, which would be 10% growth in supply.
While 2017 appears to be another banner year for the self-storage industry, all eyes will be watching newly completed projects in 2018 to see if the new units can be rented quickly without significant rental concessions.