On tour: self storage in Brooklyn
It's not all high-rise buildings and glamorous retail complexes for the Global Cities Team. Last week, our focus was on self-storage in Brooklyn when we visited a number of storage facilities to meet the companies that invest in them
Companies specialising in self storage can look good when considering long-term measures, but they've underperformed the market so far this year (when measuring against the MSCI US REIT index).
We wanted to find out from firms in Brooklyn whether there is a shift occurring in supply/demand dynamics.
From a real estate perspective, Brooklyn has strong fundamentals and residential property values well above the national average. Its thriving cultural scene and diverse service economy means space is at a premium, something we covered in "Could Brooklyn could be a global city?"
The past five years have seen strong demand for storage facilities, which many believe to be the result of a 'catch up' following the post-global financial crisis slump. The sector has been helped by population growth and economic activity in a market that lacks new supply.
Following our visits, we noted a number of positives and negatives:
What we like
- Rental growth remains strong
- Demand is high
- Density is rising as Manhattan becomes increasingly saturated (though this could be negative in the longer term)
Storage is dominated by a few large players: The largest three listed companies own the 175 assets pictured.
What we don't like
- Year-on-year occupancy gains appear to be slowing down
- There is a concern that high rents can impact social tensions as inequality grows. Rising rents have spawned a trend for thriftiness among younger groups (as blogs like Brokelyn will attest)
We believe that a number of these companies are well placed. Occupancy remains stable and rates are among some of the highest in the country. We acknowledge new storage supply is extremely high, but it is coming off a low base relative to other cities and regions.
The borough remains one of the most vibrant in New York, and as the fastest-growing city in the US (and the number two position in our Schroders Global Cities Index), we believe this demand looks set to continue.
Note: the sectors mentioned here are for illustrative purposes only and we are not making a recommendation to buy or sell
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