MARKET REPORT

SELF-STORAGE SECOND HALF 2019

Charlotte Metro Area

Economic Trends Employment Trends

2019 Employment Forecast: g 2.6% Absolute Change Y-O-Y% Change
60 4%

Total Nonfarm Jobs (000s)

Charlotte is expected to build on last year’s 2.0 percent employment growth, adding

Year-over-Year Change
another 32,000 positions this year. Through the first six months of the year, Charlotte 45 3%

payrolls have expanded by 27,000 people. The professional and business services sector
has posted the largest increase through the first half, with 9,000 roles. The leisure and 30 2%

hospitality sector and the trade, transportation and utilities sector each posted strong
15 1%
first half increases as well, creating around 5,000 jobs each.
0 0%
15 16 17 18 19*

Demographic Trends Demographic Trends

2019 Population Forecast: g 1.5% Population Growth Household Income
8%
Charlotte’s pace of population growth has been slowing on an annual basis since the end

Year-over-Year Change
of 2016. Last year, the market’s population increased by 1.7 percent, slightly better than 6%

the expected growth for 2019. Household growth, however, has been strong, increasing by
more than 2 percent annually over the past four years. Nearly 21,000 households will be 4%

created this year, a result of the extended economic expansion and tight labor market.
2%

0%

Supply and Demand Trends 15 16 17 18 19*

2019 Construction Forecast: 690,000 square feet Supply & Demand Trends
Construction Vacancy
Development activity will slow down significantly this year, adding approximately half of
1,800 10%
last year’s total deposit. The light delivery will allow demand to absorb past additions.
Completions (000s)

2019 Vacancy Forecast: g 80 basis points 1,350 9%

Vacancy Rate
900 8%
Absorption totals will fall short of supply growth again, driving the market’s vacancy rate
up to 9.7 percent at the end of this year. 450 7%

0 6%
15 16 17 18 19*

Rent Trends
2019 Rent Forecast: h 1.2% Rent Trends
Metro United States
The average rent will fall to 85 cents per square foot by the end of the year. The downward
slide in average rents is beginning to flatten after a 6.5 percent drop last year and a 6.1 $1.60

percent decline in 2017. Supply growth, which has increased self-storage inventory by
Rent per Square Foot

$1.20
nearly 20 percent in three years, has added pressure on operations, influencing owners to
drop rates and offer concessions to help boost leasing. $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.
 $110 4%

Ave
$80 2%
15 16 17 18 19*

South
Average Price and Cap Rate Trends
South Region Investment Trends
Average Price Cap Rate
Trade prices for properties in the South Region have appreciated an average of 8
$100
10%
percent annually for the past five years. The average sale price was $93 per square foot
Average Price per Sq. Ft.

$80
in June, making the South one of the more affordable regions for buyers to enter, with
8%
an average going-in cap rate of 7 percent.

Cap Rate
$60 6%

$40 4% CAPITAL MARKETS

$20
15 16 17 18 19*
2%
By DAVID G. SHILLINGTON, President,
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
25%
inflationary risk, the Fed has communicated a willingness to let the economy
“run hot” in an effort to spur growth. Should core inflation rise above 2 percent,
0% it will not be seen as an immediate risk. Falling interest rates, a byproduct of
15 16 17 18 19**
the trade war and the Fed’s efforts to boost the economy, will bolster leveraged
* Trailing 12 months through June 2019
** Year-to-date as of Aug. 12 yields for investors by a small degree as lenders also look to widen spreads. With
Note: Buyer composition based on sales $2.5 million and greater.
the yield on the 10-year Treasury now down 70 basis points from the cycle peak
last October and recently touching its lowest level since the record low set in
Edited by 2016, investment options that may not have penciled even in the second quarter
Cody Young
Research Associate | Research Services may now be feasible. This should help moderate the buyer/seller expectation
gap that widened earlier in the year.
For information on national self-storage trends, contact:
John Chang
Senior Vice President, National Director | Research Services • Accessible liquidity balances conservative underwriting. Liquidity in the
Tel: (602) 707-9700 | john.chang@marcusmillichap.com
lending market remains readily available for self-storage assets, with a wide
Price: $250 range of local, regional and national banks; insurance companies; and CMBS
© Marcus & Millichap 2019 | www.MarcusMillichap.com sources still active. Many of these organizations have mildly reduced or main-
tained lending rates in response to the falling interest rate climate, with some
The South Region encompasses Alabama, Arkansas, Florida, Georgia,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, instituting rate floors. While market forces are allowing assets to be readily
Tennessee, Virginia, and West Virginia. 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.
Charlotte Office:
Benjamin Yelm
Regional Manager
Tel: (704) 831-4600 | benjamin.yelm@marcusmillichap.com

201 South Tyron Street, Suite 1220

Charlotte, North Carolina 28202

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.