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What demographics factors do Storage REITs analyze?

Written by Noah Starr | May 21, 2024 2:15:00 PM
 
Consolidation in the self-storage industry has been rampant for the past few decades.
 
According to data analyzed by Armand Aghadjanians, self-storage properties owned by smaller operators dropped from 73% in 2018 to 64% in 2023. As the industry continues to become more institutionalized, self-storage owners should think critically about the metrics REITs analyze before buying a property.
 
Even as more institutional capital continues to flow in the industry, as evidenced by Prime Group's capital raise, Carlyle's recent investment, and Public's acquisition of Simply Self Storage, sophisticated investors wouldn't buy every property due to their specific investment criteria that reduces risk and is appealing to their investors.
 
Of the 56,000+ properties tracked by TractIQ, it's likely that more than 25% of properties would not be bought by REITs due to demographic factors.
 
When considering if a REIT would buy your property, what demographic metrics should you focus on that increase the probability of REIT level interest?
 
  1. Population counts and growth (within 3 miles)
    • Generally, REITs prefer primary and secondary markets with at least 75,000 people. This can vary greatly depending on market and if there are new housing and commercial starts that indicate future growth.
  2. Median Household Incomes (within 3 miles)
    • To generate sufficient yields for new developments, REITs look for median incomes than support $18-$25 annual PSF rents. These levels are preferred to be over $75,000.
  3. Supply Per Capita (within 3 miles)
    • To protect against entering markets that are over supplied, REITs look for the total NRSF of storage / Total Population to be below 7, with fluctuations in this metric based on local growth and other factors like basements.
  4. Daytime Population
    • While population is an obvious metric to focus on, daytime population is also important. This metric demonstrates how many people actually engage with the local area each day, and if the town is a population magnet or if it supports another city. For example, in a college town like Austin TX, daytime population can be vastly higher to account for students who are not counted within the local population.
  5. Renter Occupied %
    • Generally, REITs look for 40%+ renter occupied markets since these tenants tend to move more frequently than homeowners.
 
Ultimately, every investor has a different investment criteria, but analyzing metrics like these during due diligence can help you determine a REITs future interest level in your property.
 
If you'd like a free demo on how to utilize TractIQ to create your own investment criteria, book a demo here.
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