Like many markets the country, the Denver MSA has seen a large increase in the amount of self storage supply since the beginning of the economic recovery in 2010. This unique asset class has caught the attention of Wall Street in the last decade and during that time, self storage has yielded dividends that are oftentimes more favorable than traditional assets classes, such as multifamily and retail. Because of Denver’s population growth, there has historically been more demand for self storage than there has been supply to meet that demand. And developers have risen to the occasion to meet that demand by delivering over 7 million square feet of self storage, compared to about 4.5 millions square feet in the late 1990’s.
New Facilities Opening
Currently in Denver, there are approximately 75 projects in various stages of development with 68 of those projects actually under construction. These projects are averaging 76,000 net rentable square feet up to over 125,000 NRSF on the larger end. Specifically around Parker and DTC, supply ratios have spiked to unhealthy levels even prior to any of these new projects opening. At a few locations, rental rates have plummeted from $150 per month to $75 per month. Expect pain in these particular submarkets in the fall of 2019 as new supply is introduced, rental rates decline, and vacancy rates increase.
Housing Starts Slowing
To help balance out the oversupply of self storage in the Denver MSA, population growth and housing starts will both need to increase. Quarterly new home starts are up 2% over Q3 of 2017, but the rate of increase in housing starts is beginning to level off as interest rates rise and homebuilder stocks continue their downward trend, with some losing over 30% of their value in 2018. However, one submarket to keep an eye on is Douglas County with just over 3,000 housing starts over 2018, representing a 35% year of year increase in housing start volume.
With housing starts leveling off, self storage supply on the increase, and self storage rates on the decline, Denver has become a cautionary tale with many of the larger self storage REITS slowing acquisitions and new development, citing softness in same-store sales growth.