December 2023 — Office & Industrial Quarterly — Page 25 INDUSTRIAL — MARKET UPDATE A s the year begins to wind down and we are approach- ing 2024, I reflect on what 2023 has brought the self-storage real estate industry both nation- ally and in Colorado. Nationally, over the span of the last five years, self- storage has grown to more than a total of 1.8 billion square feet of space as of 2023. Also in the last five years, 260.4 million sf of storage space was built that's equivalent to 14.8% of the total inventory, accord- ing to Storage Cafe. Howev- er, despite this, it cannot be ignored that developers and investors in the self-storage industry are still facing headwinds causing volatil- ity in the market, such as higher interest rates, higher costs of construc- tion, and the appar- ent dis- connect between buyers and sellers. Given the headwinds faced in the mar- ket today, self-storage transactions are down significantly year over year, by approximately 57% (according to a national commercial real estate firm), but self-storage con- tinues to be one of the most desired investment asset classes. Investors in the market continue to look at this asset class as resilient to inflation due to the typi- cally standard month-to- month leases versus longer leases that are preferred in other commercial real estate asset classes. Buy- ers are being more selective than ever, but we are start- ing to see the buyer pool change with an influx of additional high net worth individuals, family offices, funds and now multifamily groups entering the market. In having conversations at the Self-Storage Associa- tion’s fall convention in Las Vegas with some of these multifamily groups that are entering the market, we realized that their attraction to the self-storage asset class is due to wanting to diversify their portfolio and find buying opportunities with higher cap rates than they are seeing within the multifamily asset class. Generally, we are seeing cap rates associated with self-storage transactions at 75-110 basis points higher than a year ago. In 2023, we have begun to see some sellers adjust and lower their expectations due to the rapid increase in interest rates that we have seen since 2022. However, more commonly, we see sellers hold firm on their expectations or simply object to selling due to not feeling like there are better opportunities into which they can place their capital and generate a similar or greater return. The average rent for a standard 10-by-10-foot stor- age unit across the U.S. is $126 on a monthly basis, according to StorageCafe. This is down 3.8% year over year. In Denver, the average cost of a standard 10-by- 10-foot storage unit is $135 on a monthly basis. This is down 2.9% year over year. Climate-controlled 10-by- 10-foot units are averaging about $141 monthly across the United States. Also, according to StorageCafe, Greeley is ranked seventh out of the top 20 fastest- growing cities based upon street rates. According to the same report, Greeley has seen a year-over-year increase of approximately 12.5%. At the top of the list is Cartersville, Georgia, with a year-over-year change of approximately 31.9%. Even though we are facing what seems to be continu- ing headwinds, deals are still getting done, however, they are taking longer and often require a more cre- ative approach. s Headwinds aside, self-storage deals are happening Increase NOI with Solar Generate Signi cant Tax Bene ts Lauren Larsen Adviser, NAI Affinity Self-storage units Deals are still getting done, however, they are taking longer.