Self-storage has always had a lackadaisical reputation among commercial real estate investment types. Seen as a more mom-and-pop business than an investment asset, many investors have stuck to avenues they know and understand such as office buildings or shopping centers, but now, more than ever before, investors are jumping into self-storage and in particular the state of Alabama is getting many looks from outside investors. Some of the reasons self-storage makes such a solid investment in Alabama are below:
Break Even Point:
In many other commercial investments, developments start cash-flowing after they reach a high occupancy level close to 85%. In self-storage, if developed right and in the right location, the property can start cash flowing at as low as 40% occupancy. It is rather unheard of in other asset classes to be cash flowing when there is still a 60% vacancy!
While nothing is truly recession proof, self-storage is very resilient to changes in the economy. During the great recession of 2008, self-storage REITS (Real Estate Investment Trusts) were one of the only asset class REITS that claimed a positive return in this time period. Part of this is because in a recession many people tend to downsize or relocate, but they do not want to have to rid themselves of their valuable belongings. This presents with more tenants in a self-storage facility. On the flip side, when the markets are good, people tend to have more things and thus, need a place to store them.
The state of Alabama in particular is getting looks from outside sources because while the larger cities in surrounding states have become saturated and led to low cap rates, higher cap rates, hovering around 8% to 9%, can still be attained in Alabama on self-storage properties.
Keys to Remember:
If looking to purchase an existing self-storage facility, things to keep in mind when examining the local market are competition, household income, traffic counts in front of facility, barrier to entry for future competition, and 5-mile population radius. A qualified commercial real estate broker with experience in self-storage investment sales can be key in helping you make an informed purchase or development decision.
James Lomax is a Commercial Real Estate Broker specializing in Office & Self Storage with Colliers International in Huntsville, Alabama. He can be reached at 256.503.6088.