A Ski Rescue and Getting Back on the Slopes
By Scott Schoettlin, Managing Director
Firstly, a big thank you to SSA for hosting SkyView and my colleagues at the Executive Ski Conference in Whistler. What a productive set of meetings with valuable opportunities for networking, outstanding panels, and evening receptions. From REIT’s to private equity groups to leaders across the self-storage category, events like this help to build trust as a foundation for business.
Jumping into 2024 self-storage thoughts, I want to start by sharing a story. As I was skiing down the mountain in Whistler, I passed by a skier who was calling out for help. I stopped and headed over to find Anan, a sit skier who had slid off the main area. He had gotten off track down the chute, and was stuck in snow to his neck. As I assessed this perilous situation, I knew I would have to dig him out hard and pull him out. I braced myself, got started and two other skiers came by to help. We led a ski rescue of Anan and safely got him back on track to head on down the slope.
For those of us in the CRE industry, this story may feel a bit like commercial real estate in 2023. While the highest quality self-storage valuations held up relatively well, CRE markets in general and even parts of the self-storage market got off track from the lofty expectations formed in the 2020 – 2022 market. A decade that started as a smooth downhill ride started to drift and the realities of 2023 left some of us feeling stuck and in need of digging a new path to get back on track. This challenging backdrop culminated with a slowdown particularly in the sunbelt and southeast, in part due to seasonality as 2023 came to a close. Year-over-year lease rates declined nationally by approximately 4%, but likewise may have bottomed out at year-end 2023 during weaker seasonality. It has been back to basics of trading high quality assets, understanding what creates value, and using expertise to convey value to buyers.
Early in 2024, there is hope that a market rescue and healing is in progress as interest rates begin to ease and sentiment turns cautiously optimistic. The bid / ask spread is narrowing as sellers have come to grips with the current market dynamics. Increasingly, the market consists of sellers who have a real desire or need to sell listing their properties with more reasonable pricing expectations and clearly conveyed value. We are seeing an uptick in groups underwriting and total offers per deal with a 20% increase in the number of offers coming in for core assets in top 50 MSAs.
There are a number of macro factors that should help provide a more favorable backdrop for an uptick in self-storage transaction volume in 2024, highlighted by the following top 5 trends to watch:
1. Slower delivery of new supply given the higher cost of capital has slowed down new projects and delivery
2. Stabilizing interest rates which should decelerate the drag that cap rate expansion has caused over the past year
3. Lower overall supply / inventory of properties available for sale
4. Continued migration patterns that favor Florida, Texas, the sunbelt and other select metros
5. Adjusting seller price expectations that are starting to narrow a bid-ask spread that has been fairly wide for the past year
Selling in the current environment is the antithesis of fast and easy. As the stretched timeframes may suggest, it is about endurance and building relationships with buyers so that there is trust in the property’s financial metrics and long-term value. This involves outstanding preparation, presentation, and representation of the property to shine a spotlight on every aspect that may influence the buying decision.
With SkyView’s expertise in self-storage and focus on taking quality assets to market with sellers who understand the value of the properties, SkyView was able to outperform in 2023. SkyView continues with this winning formula, innovative technology and a 252 process for elite execution to maintain good value for clients. Here’s to hoping that we can all get back on the slopes to make fresh tracks on fresh snow in the year ahead.