Houston is famous for space, not just NASA’s center for human spaceflight, but also the way it has tended to expand to accommodate a growing population. The same might be said for the self-storage industry in the city, which has 68.4 million square feet of space, and its self-storage footage per person ratio of more than 9.5 is one of the highest in the country, according to Yardi Matrix in July 2019. But the data also reveals that street rates on a range of self-storage unit sizes in Space City have dropped significantly on a year-over-year basis.
Houston the Expanding City
Houston is famously a place for car drivers and it has embraced the motto “drive until you qualify” more than most large U.S. cities. This means that home seekers simply have to consider properties as far out of town as their budgets will allow—and developers assist by building more of them, further out and cheaper, thereby spreading the sprawl.
And Houston has continued to expand. A Marcus & Millichap report published this year states that 120,000 new employees bolstered the payrolls in 2018, a record among U.S. metros, and that this trend is expected to continue this year, with 110,000 predicted to start jobs in the city by the end of 2019. This is partly generated by a net migration into the city of over 60,000 people for the second year in a row. And with retail spending increasing by more 5% for the third consecutive year, it might seem a very positive outlook all around.
Inflated Self-Storage Sector Caused Major Drops in Street Rates
But there may have been enough expansion in the self-storage sector already. Yardi Matrix data reveals that in July 2019 providers had dropped their prices year-over-year by as much as -10% for air-conditioned 10×10 units, a lot higher than the national average of -4.4%. The city’s year-over-year street rate -6% decrease for non-air-conditioned 10×10 units was also considerable compared to the -2.5% figure nationwide. The average street rate on a 10×10 non-air-condition unit in Houston is now $85, which is less than in almost all the other major cities in the US—most of these places have seen a reduction year-over-year, but not as great.
Overbuilding is blamed for the drop in profitability of Houston’s self-storage sector. And anyone looking for self-storage in Houston may have been pleased to find that the remedies used to combat oversupply and to maintain occupancy rates have included rent concessions and other discounts.
Predicted Decline in Construction in 2019
It appears that even Houstonites are saying that expansion is not always the way forward. With Houston property not as cheap as it once was, attempts have been made recently to provide affordable housing by other means than the city’s traditional laissez-faire attitude to building. In line with this, the storage industry has been throttling back on its construction programs.
Yardi Matrix data reveals that in August 2019 the number of Houston self-storage facilities planned or under construction as a proportion of the total inventory was just 4.5%—small compared to the figures for Portland and Nashville, for example, which were 23.3% and 21.8% respectively, and to the national average of 9.5%. But Houston storage providers may be acting in a timely fashion, as that was a slight increase over the previous month, which is not a trend witnessed in all parts of the country right now.
What’s Next for Houston’s Self-Storage Sector?
The self-storage sector in Houston could be said to be quite depressed right now. But there are some positive indicators that the fundamentals needed for recovery are in place. For example in July 2019 the number of jobs in the city showed a year-over-year increase of 3%, one of the highest gains among the US’s largest cities. This expanding job market, and the swelling population which serves it, is a good sign that spare self-storage space will be occupied. Houston is a survivor, coping not infrequently with severe weather and fluctuating oil prices, and even if the self-storage construction sector doesn’t bounce back quite yet, investors will have reasons to hope for long-term recovery.
This report was compiled by StorageCafe , a self-storage search portal powered by Yardi. The data used in this report was provided by our sister company Yardi Matrix, a business development and asset management tool for brokers, sponsors, banks and equity sources underwriting investments in the multifamily, office, industrial and self-storage sectors.