MARKET REPORT

SELF-STORAGE SECOND HALF 2019

Houston Metro Area

Economic Trends Employment Trends

2019 Employment Forecast: g 3.2% Absolute Change Y-O-Y% Change
120 6%

Total Nonfarm Jobs (000s)

Year-over-Year Change
The Houston metro is on pace to add 101,000 jobs over the course of 2019. This will be a
30,000 increase over last year’s employment expansion of 2.3 percent. Through the first 80 4%

six months of this year, the metro has already added nearly 54,800 positions, led by the
40 2%
professional and business services sector with 14,900 jobs filled. The educational and
health services sector as well as the mining sector each expanded payrolls by more than
0 0%
7,000 people in that span as well.
-40 -2%
15 16 17 18 19*

Demographic Trends Demographic Trends

2019 Population Forecast: g 1.6% Population Growth Household Income
8%
Population growth in the metro is expected to accelerate this year, adding nearly 115,300

Year-over-Year Change
residents, edging out last year’s 1.5 percent gain of 105,400 people. The combination of 6%

tight labor markets and net in-migration bode well for overall household growth as pro-
fessionals move into the metro and many local residents find jobs and achieve financial 4%

stability to live independently.

2%

0%

Supply and Demand Trends 15 16 17 18 19*

2019 Construction Forecast: 1,662,000 square feet Supply & Demand Trends
Construction Vacancy
The pace of construction will slow this year following two consecutive years with annual
4,000
deliveries totaling more than 3 million square feet. The western portion of the metro is 12%

anticipating 900,000 square feet, while the eastern side will receive the remainder.
Completions (000s)

3,000 10%

Vacancy Rate
2019 Vacancy Forecast: g 50 basis points
2,000 8%

Market demand hasn’t been able to absorb the new supply as the vacancy rate climbs 1,000 6%
again this year to 9.9 percent. Last year, the large deposit spiked the vacancy rate up 280
basis points. 0 4%
15 16 17 18 19*

Rent Trends Rent Trends

Metro United States
2019 Rent Forecast: h 1.1%
$1.60
The metro’s average rental rate will decline again this year, dropping to 86 cents per
Rent per Square Foot

square foot. Pricing remains balanced on each side of the market, with both the West and $1.20

East Houston submarkets posting the same average rate.

$0.80

$0.40

$0
* Forecast
16 17 18 19*
Average rent is estimated based on rates for a 10- x 10-foot, non-climate-controlled unit.
 A
A
$50 2% $80 2%
15 16 17 18 19* 15 16 17 18 19*

Texas/Oklahoma South
Average Price and Cap Rate Trends Texas/Oklahoma
Average Price andRegion Investment Trends
Cap Rate Trends
Average Price Cap Rate Average Price Cap Rate
Sales prices continue to improve in Texas and Oklahoma despite the dampening impact
$90 $100
10%
of substantial new supply on asking rents. Favorable 10%
demographic trends and the some
Average Price per Sq. Ft.

Average Price per Sq. Ft.

$75 of the lowest
$80 entry costs in the nation encourage investment. In June, the average sale
8% 8%
price rose to $79 per square foot, while the average cap rate remained flat at 7.4 percent.

Cap Rate

Cap Rate
$60 6% $60 6%

$45 4% CAPITAL
$40 MARKETS 4%

$20
$30
15 16 17 18 19*
2%
By DAVID G.15SHILLINGTON,
16 17
President,
18 19*
2%

Marcus & Millichap Capital Corporation

National Self-Storage • Fed trying to extend economic runway but hitting headwinds. The Federal
Buyer Composition Reserve’s decisive action, including its rate drop in July, will support the eco-
100%
nomic growth cycle but may be outweighed by the escalating trade war. Uncer-
tainty and caution increased following the Aug. 1 announcement that additional
75%
User/Other tariffs would be levied, sparking a flight to safety and the recent inversion of
Percent of Total

Private the 10-year and two-year Treasurys. Though the Fed’s 25-basis-point reduction
50%
REIT/Listed of the overnight rate and early end to quantitative tightening could pose some
Institutional inflationary risk, the Fed has communicated a willingness to let the economy
25%
“run hot” in an effort to spur growth. Should core inflation rise above 2 percent,
it will not be seen as an immediate risk. Falling interest rates, a byproduct of
0%
15 16 17 18 19** the trade war and the Fed’s efforts to boost the economy, will bolster leveraged
yields for investors by a small degree as lenders also look to widen spreads. With
* Trailing 12 months through June 2019
** Year to date as of Aug. 12 the yield on the 10-year Treasury now down 70 basis points from the cycle peak
Note: Buyer composition based on sales $2.5 million and greater.
last October and recently touching its lowest level since the record low set in
2016, investment options that may not have penciled even in the second quarter
Edited by
may now be feasible. This should help moderate the buyer/seller expectation
Cody Young
Research Analyst | Research Services gap that widened earlier in the year.

For information on national self-storage trends, contact:

John Chang • Accessible liquidity balances conservative underwriting. Liquidity in the
Senior Vice President, National Director | Research Services lending market remains readily available for self-storage assets, with a wide
Tel: (602) 707-9700 | john.chang@marcusmillichap.com
range of local, regional and national banks; insurance companies; and CMBS
Price: $250
sources still active. Many of these organizations have mildly reduced or main-
© Marcus & Millichap 2019 | www.MarcusMillichap.com tained lending rates in response to the falling interest rate climate, with some
instituting rate floors. While market forces are allowing assets to be readily
financed, softened property fundamentals have increased lender caution,
particularly for non-stabilized assets. Fluctuations in rental rates have made it
National Self-Storage Group difficult for some investors to estimate income growth for recently opened fa-
For more information, please contact:
cilities. Conversely, lending for stabilized properties in good locations remains
Joel Deis plentiful, underpinned by favorable storage demand metrics that include both
Vice President, National Director
Tel: (206) 826-5700 | joel.deis@marcusmillichap.com pro- and counter-cyclical drivers such as employment growth and elevated
divorce rates.
Houston Office:
Ford Noe
Regional Manager
Tel: (713) 452-4200 | ford.noe@marcusmillichap.com

Three Riverway, Suite 800

Houston, Texas 77056

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee,
express or implied, may be made as to the accuracy or reliability of the information contained herein. No representation, warranty or guarantee, express or implied may be made as to the accuracy or reliability of
the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be
considered as investment advice. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise
noted. Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics, Yardi Matrix, Union Realtime, CoStar Group, Inc., Moody’s Analytics, U.S. Census Bureau.