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Focus on Quality Helps Public Storage Maintain Occupancy

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Development and redevelopment of self-storage facilities

Public Storage (PSA) puts a great deal of focus on the development and redevelopment of its existing facilities. Recently, there’s been a trend of rising rent for self-storage facilities.

The improvement in the industry coincided with increased demand for apartments as more and more people began opting for multifamily apartments when they couldn’t afford garages, attics, or basement spaces in which to store their property. Self-storage REITs are normally rented to businesses and individuals, and ~70% of tenants are individuals.

Self-storage REITs such as Public Storage (PSA), Life Storage (LSI), Macerich Company (MAC), and Extra Space Storage (EXR) put a big focus on the quality and maintenance of their storage facilities in order to maintain their occupancy levels.

Public Storage and Extra Space Storage occupy almost 9% of the iShares Cohen & Steers REIT ETF (ICF).

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Quality matters

The storage facilities built by Public Storage are impressive. The arrangement gives consumers a feeling of security, and the buildings are constructed with quality materials made to last a long time. A well-constructed facility has a longer useful life, and a storehouse that appeals to the eye also fetches more demand.

While a typical storage space spans over 60,000–70,00 square feet, expanding the facility doesn’t require too much capital, and it can garner a significant return.

Public Storage has expanded its development efforts since 2013 at par with growth in rent. Moreover, on December 31, 2016, PSA had a development pipeline of ~5.3 million net rentable square feet of self-storage space worth $660.2 million.

During the three months that ended on March 31, 2017, Public Storage completed its development and redevelopment activities, which added 475,000 square feet of net rentable space worth $88.9 million. Projects in the pipeline included new self-storage spaces and the redevelopment of existing facilities, which added 5.2 million square feet of rentable space worth $618.2 million.

Public Storage has plans to deploy $429.9 million of remaining spending on its ongoing development pipeline.

In the next article, we’ll try to find out how the interest rate hike affects PSA.

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