The stellar growth of both apartment and self storage real estate investment trusts (REITs) translates into a sure sign that the U.S. housing market is still in a slump. Analysts are noting a strong historical correlation between revenue growth with storage REITs like Public Storage and revenue growth with the apartment REITs.
Currently the cost to rent is still much cheaper than buying in many big markets. And many young consumers who are just out of college or grad school are more likely to rent than buy. And when you’re moving out of your parent’s house or from a college dorm and into an apartment , you’ll need a place to store all your stuff. That’s where self storage enters the scene in the real estate game.
The largest players in the self storage sector include publicly traded REITs Extra Space Storage Inc. (NYSE: EXR), Public Storage (NYSE: PSA), Sovran Self Storage Inc. (NYSE: SSS) and U-Store-It Trust (NYSE: YSI). These large players in the self-storage industry are forecasting a 2% to 3% increase in same-store sales growth in 2011, and an even better increase in net operating income in the coming year. The four publicly traded self storage REITs generated total returns of about 30 percent last year, with the first quarter of 2011 exhibiting similar strength at about 10 percent.
Shares of leading apartment REITs Equity Residential (EQR), Apartment Investment & Management (AIV) and UDR (UDR) are near 52-week highs. According to the most recent figures about housing ownership and vacancies released by the U.S. Census Department Wednesday, rental vacancies fell to 9.7% in the first quarter of this year from 10.6% a year ago.
"Apartment owners have been on a tear for a couple of years, and should continue to do well," said David Harris, a REIT analyst with Gleacher & Co. in New York. "Some people refer to it as a propensity to rent but in reality, it's an aversion to buy."
Meanwhile, the home vacancy rate was unchanged. And homeownership has declined from a year ago. The homeownership rate for those under the age of 35 is at a 16-year low.
These trends bode well for the apartment and storage industries who typically offer leases on a month-to-month basis and can quickly raise rates, if needed. With the job market improving, rental rates are on the rise after a long stagnation during the recession.
"A few years ago, apartment and storage companies were more worried about holding onto existing tenants," said Bob Gadsen, manager of the Alpine Realty Income & Growth Fund (AIGYX) in Purchase, N.Y. "But because these companies offer shorter-term leases, they have more pricing power now."
“Nation of Renters and Hoarders.” CNNMoney.com. April 27, 2011.
Stevens, John. “Self Storage Hangs Tough Through Recession, With Industry REITS Surpassing General REIT Sector.” Self Storage Industry News. April 14, 2011.