Dallas Self-Storage Development Maintains Slow But Steady Construction Trajectory
By Mirela Mohan of STORAGECafé
The self-storage industry closed 2020 on an upward path, seeing stable or rising rental rates and elevated construction activity across the board after an uncertain year.
According to our data, new construction stayed on a steady trajectory throughout the year, with 49.4 million square feet of new product added nationally — slightly less than the volume of new development in 2019. This came as a natural consequence of the high existing inventory which, combined with the shock of the pandemic, eventually led to the asking rate plunge in the first half of 2020.
Rates Plunge, Then Revive
The existing high inventories put downward pressure on asking rates in 2020, and the arrival of the pandemic only accentuated the existing trend. However, after rents bottomed out at $112 per month in May, street rates started picking up. By December 2020, national street rates had reached $118 per month, a 3.5 percent year-over-year increase.
This slow but steady supply growth was mostly linked to consistent demand that emerged from both traditional sources such as moving and downsizing, as well as from new sources created by last year’s disruptive events.
For example, college students began to need short-term self-storage options as campus life was put on hold. Restaurants, retailers and other businesses turned to the sector as they reorganized the interiors of their stores to meet new pandemic-induced rules and regulations. Furthermore, with the rise of the digital economy, self-storage came to the aid of Americans who transitioned to working from home and were in sudden need of creating extra space for their home offices.
In order to encourage positive occupancy, many operators offered perks and concessions such as student discounts and fee waivers, further cementing demand. Thus, driven by both stable demand and positive move-ins, self-storage developers were incentivized to continue to be aggressive with new projects.
The industry has found ways to adapt to pandemic-induced challenges. Many self-storage owners and operators have adopted tech solutions to ease operations and reduce physical contact with customers. Online leasing has gone mainstream, with many facilities offering virtual tours and reservations, as well as online payment options and valet services.
Volume Remains Healthy
The U.S. currently has over 1.4 billion square feet of self-storage inventory. Of that amount, 229 million square feet — 15.4 percent — was built over the last five years. The best year in terms of new deliveries was undoubtedly 2018, when no less than 56.9 million square feet of rentable self-storage space came on line, a 53 percent year-over-year increase from 2017. In 2021, roughly 590 facilities totaling 43.6 million square feet of net rentable space are projected to be added to the national inventory.
While construction activity should remain on an even keel at the national level, oscillations are more likely to surface when looking at individual markets. Our report used data provided by sister research division Yardi Matrix in order to analyze self-storage development trends in the 100 largest markets in the country.
According to the findings, the New York–Newark–Jersey City market registered the most new self-storage construction in 2020, with over 3 million square feet added to the local inventory. Despite this growth, the New York City metro stands out as one of the most undersupplied markets in the country, with only 3.2 square feet of self-storage per capita. The Phoenix–Mesa–Chandler market took the silver medal with 1.8 million square feet of self-storage, and Dallas–Fort Worth–Arlington snatched the third spot nationally.
Market Growth Will Continue
Dallas is a market that has garnered the most attention from developers over the years; it now has more than 65 million square feet of total self-storage inventory, the highest supply level in the country. Deliveries over the last five years peaked in 2018, when developers added 3.1 million square feet to the market — a construction record among U.S. metros that year.
Both 2019 and 2020 witnessed lower completion levels — 2.4 million square feet and 1.8 million square feet, respectively. This slowdown in deliveries is most likely a result of the intensified market activity that brought supply to roughly 8.6 square feet of storage space per capita, well above the per person national benchmark of approximately seven square feet per head.
The recent uptick in new development has also put pressure on rents, which recorded negative growth last year. A standard 10×10 unit rented for $93 per month on average in December 2020, down 1.6 percent year-over-year, placing Dallas among the nation’s most affordable self-storage markets.
Texas is generally regarded as a renter-friendly market, with Austin, Houston and San Antonio also featuring monthly street rates lower than the national average of $118 per month. Of these three markets, Houston recently registered the lowest street rate — $86 per month in December 2020— followed by San Antonio ($97) and Austin ($99) at the same point in time.
As economic perspectives improve and population continues to increase, development activity is expected to maintain a slow but steady growth course in the Dallas-Fort Worth metroplex. There are 26 facilities expected to be complete in 2021, which will amount to over 2.6 million square feet of new space coming on line.