Overview: Yesterday, we had the opportunity to host investors in Miami, Florida for a tour of CubeSmart, Extra Space, and Life Storage properties as well as a development site funded by Jernigan Capital. Overall, the tour provided insights into self-storage demand, near-term deliveries, and the outlook for the broader Miami MSA. Effective rents and demand seem generally stable, though one district manager noted their portfolio-wide rents were down vs. last year. While several sources have identified Miami as a ”watch list” market, the tour assuaged some fears over the impact of new supply and clearly demonstrated the localized nature of the business. Further, the proposed self-storage development moratorium – that seems likely to be approved by the City Commission – should limit future competition.
♦ Miami overview: Th MSA is the 7th-largest self-storage market in the country. However, at 4.9 square feet per capita, it’s nearly 30% below the national average which has helped drive strong absorption of new supply. The development pipeline contains 40-60 properties, or 8-12% supply growth (depending on source). The self-storage REITs generate 5-10% of same-store revenues from the MSA.
♦ Development moratorium: The city of Miami’s Planning, Zoning and Appeals Board (PZAB) unanimously approved an ordinance that proposes a minimum of 2,500 feet between self-storage facilities in two of Miami’s zoning designations and also mandates that developments have ground floor commercial space. Underwritten development yields are still north of 9% (unleveraged), very attractive and enticing to prospective developers who can submit applications before the moratorium takes effect.
♦ New supply impact: Increased discounting was a common theme and one manager noted renewal rate increases to existing customers may be suspended/negotiated to keep current tenants from moving. However, a broad generalization of the impact of new supply is unfair as it ranged from virtually no impact (a high-density, constrained market) to significant (300 bp lower occupancy and 15-20% discounts during the first 3-4 months of early lease-up of the new competition).
♦ Double-edged sword of mobile search: Robust mobile search platforms have led to significant gains in visibility and occupancy over the past several years. That said, one manager noted booking online or via mobile can lead to rental rates 7-10% below Street rates. One investor noted there appeared to be significantly more listings on Sparefoot.com than in prior years, a likely result of both more supply and increased use of the aggregator by smaller operators.