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Analysis: Houston’s Self Storage Supply Growth

HENDERSONVILLE, Tennessee—The Houston market outlook was a hot topic during recent earnings announcements from publicly traded self-storage companies, due to the market’s decelerating growth and the industry’s overall interest in development in Texas markets. 

“If you look across our [Public Storage] Top 20 Markets, all had positive growth year over year except one - Houston,” said Ron Havner, CEO of Public Storage, during his company’s quarterly earnings call. Glendale, California-based Public Storage owns more than 2,300 self storage facilities in the United States. 

Additionally, Life Storage, a Buffalo, New York-based real estate investment trust that owns approximately 650 self storage facilities in the U.S., is projecting worse than expected Q4 2016 performance for Houston.  

The self storage industry has been trying to gauge the impact of new supply on performance for quite some time, and this interest level has developed as the industry is experiencing deceleration.  

STR, a leading data and analytics service provider, is building a database to track self storage inventory and development activity. Based on STR’s analysis, 58 development projects are underway in the Houston market, which represents less than 6% potential growth in the number of facilities in Houston. A potential 6% growth in new facilities is lower than the other nationwide markets currently tracked by STR. Harris County, where Houston is located, has the most development activity (21 projects). Fort Bend County has the next highest count of new projects (11).

“The new supply in Houston is satisfying demand that was created by population growth, as well as lack of development, over the past several years before the oil and gas market downturn,” said Bill Brownfield, a real estate expert with self storage brokerage firm Argus. “It is possible that certain submarkets will be overbuilt and see some occupancy declines by mid-2017, but we do not believe that we have witnessed this to date. But stay tuned for 2017.”   

Several factors are likely affecting Houston’s relative underperformance, such as the decrease in oil prices and resulting dislocation from this phenomenon. It is unclear what role new supply entering this MSA plays in Houston’s performance in the self storage industry.  

STR expects 41 facilities in the Houston market to be completed and begin operating during the next year. Considering all tracked development projects, the Houston market faces a potential supply increase of 3.8mm net rentable square feet (NRSF), or a little more than half a net rentable square foot, per person. This is expected to outpace historic population growth rates of approximately 2.5%, thus raising a future supply absorption concern for the Houston market.    

STR will continue tracking self storage development activity to assess the supply impact on industry performance. 

Dean Jernigan, a 30-year veteran of the self storage industry who oversees Jernigan Capital, said, “I am delighted to see the progress that STR is making in building new supply pipeline reports in our largest storage markets around the U.S. This is a big step in helping our industry avoid disastrous overbuilding during these next two years."  

Listings of facilities under development and existing facilities in markets across the U.S. are available for purchase by contacting STR at ssinfo@str.com.