Self-Storage Is Overlooked Nationwide, But Especially in Florida
By Mike Mele and Luke Elliot October 23, 2023 12:01 pm
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The self-storage sector has been overlooked nationwide, but especially in Florida. While conditions have cooled from peak demand, migration to the state and new apartment construction continue to make self-storage a desirable, and attainable, asset class for investors.
Florida was declared the fastest-growing state in the nation in 2022, according to the U.S. Census Bureau. The state’s population surged by 1.9 percent, reaching 22.2 million residents between 2021 and 2022. This influx of newcomers to Florida has been a driving force behind the state’s increased demand for storage solutions.
One striking indicator of Florida’s appeal is U-Haul’s ranking of Ocala, Fla., as the No. 1 city for one-way truck rentals in the country. Ocala’s top spot reflects the substantial number of individuals and families moving into the area. It’s worth noting that other Florida cities, such as Palm Bay-Melbourne, North Port, Lakeland and Miami, are also featured prominently on the truck rental company’s list. These migration patterns highlight the strong interest in Florida as a destination.
In the first half of 2023, the sector began to “normalize,” primarily due to a deceleration in rent growth and occupancy. However, it has proven resilient. Secular demand trends and positive market fundamentals continue to attract investors, pointing to more favorable risk-adjusted returns for the self-storage sector.
What we’ve noted is that average occupancy levels continue to be around 92 percent in Florida, slightly above the national average, demonstrating continuing demand and overall strength of self-storage as an asset. It underscores the importance of storage facilities to cater to the needs of Floridians and newcomers alike. We are seeing some street rental rate growth decline in the state as well, but as length of stay increases, we see in-place rents maintaining or continuing to grow on a year-over-year basis.
New apartment construction in Florida is also expected to bolster self-storage activity. Florida has seen the completion of 212 new multifamily projects between January 2022 and January 2023, Yardi reported. Additionally, RentCafe predicts that over 47,000 new apartment units are expected to come online in 2023 across major Florida metros such as Miami, Tampa, Jacksonville and Orlando.
Nationwide, we’ve also seen strength in terms of new supply of self-storage facilities. In the third and fourth quarters of 2022, construction starts reached all-time highs. Meanwhile, in the first and second quarters of 2023, developers pulled back, enabling additional supply to be absorbed. Current construction levels represent only 0.3 percent of the existing supply, which is more in line with longer-term construction trends.
Florida is still experiencing tremendous population growth, which is opening new markets for storage developers. Orlando, for example, with its lack of natural borders, certainly has submarkets that are temporarily oversupplied, but as growth continues, new opportunities for self-storage are expected to present themselves.
Interest in Florida is still very robust from an investment perspective. Florida’s recent population growth is continuing to generate increased interest for storage facilities with the average length of stays rising. Florida, and the Sun Belt in general, factor predominantly on most institutional investors’ wish lists. This is not to say Florida is without headwinds, literally and figuratively. Property insurance costs have been rising nationwide and Florida has some of the highest rates in the country, which can impact self-storage performance.
The bottom line is that self-storage fundamentals remain healthy for Florida as a whole going into the end of 2023.
Mike Mele is executive vice chairman and Luke Elliot is vice chairman of Cushman & Wakefield’s self storage advisory group.
More information can be found in Cushman & Wakefield’s latest research report here.
