Self-Storage Market Analysis 2021: Phoenix and Tucson, AZ

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When it comes to self-storage, one area of ​​the sun belt is getting brighter and brighter. Arizona’s two largest cities, Phoenix and Tucson, continue to defy already high expectations, with rents soaring despite a surge in supply in the new industry.

The main reasons for this almost unprecedented growth are a strong economy, a booming population and a hot housing market. Also, it doesn’t hurt that many nearby Californians, tired of high home prices and taxes, flock to Arizona by the thousands each year.

“We are busier than ever” says April Worden, owner and CEO of Brown Worden Properties, which owns self-storage facilities in the Tucson area. “The demand continues to grow. Last year we opened our 19th location, which is already 70 percent occupied. “

supply and demand

The numbers pretty much tell the story. According to US census data, Arizona was the third fastest growing state in the US in 2020, with a population increase of 1.78% to 7.4 million people. By comparison, the nation only grew 0.5% last year. Arizona’s population has grown by a staggering 45% in this century, with most of the people flowing into the greater Phoenix area, which includes Scottsdale, Mesa, and Tempe, home of Arizona State University.

Unsurprisingly, the boom has led to increased demand for short and long-term self-storage. According to Radius +, a company that specializes in self-storage data, analytics, and location intelligence, supply in the Phoenix area has grown 18.3% to 33 million square feet over the past three years. The penetration rate (square feet of self-storage space per capita) is now around 6.7, which is above the national average of 5.9.

In most markets, such an influx of supply would lead, if only briefly, to deflation in rental prices, but that was not the case in Phoenix. Instead, rental rates have risen steadily over the past few years, reaching around $ 1.82 per square foot in early April for air-conditioned units operated by the real estate investment trusts and $ 1.70 for all, according to Radius + data Units.

“This is a very healthy market” says Cory Sylvester, a director at Radius +, noting that he sees no major drawbacks. “It has great long-term growth prospects.”

The old pueblo

With a population of around 1 million, the self-storage market in Tucson – about 200 kilometers south of Phoenix – isn’t that hot, but it’s very solid by most other standards. In recent years, supply has grown about 9% to 6.5 million square feet, data from Radius + shows. The penetration rate of around 6.1 is now just above the national average.

Additionally, rental rates in Tucson are strong, hovering around $ 2.06 per square foot for air-conditioned units. Although many of the city’s residential units are not air-conditioned, rents have remained at a relatively high level, notes Sylvester. “Tucson is definitely a growth market, but not as much as Phoenix,” he says.

Market dynamics

The success of the self-storage markets in Phoenix and Tucson is ultimately due to the state’s strong economy and booming population, which have fueled tremendous demand for new homes. In fact, there are waiting lists because home developers can’t build fast enough. This has led to an increase in storage demand for those who want to temporarily store items until they find a new apartment, as well as long-term solutions for residents who do not need as much material in their newer apartment buildings. In addition, the pandemic and an increase in teleworking have created an increased need for space.

“As the demand for housing increases, so does the need for additional storage solutions,” said Whitney Jurjevich, owner of Ameripark Covered Storage and board member of the Arizona Self-Storage Association. “The idea of ​​overbuilding correlates directly with what happens in the home. The market is trying to keep up with demand and a lot is happening through apartment buildings, which means residents need it [storage]. “

Not only household and business items need space. Jurjevich, whose firm specializes in storage solutions for boats and RVs, says his business is seeing strong demand from outdoor-minded Arizonans. The desire to relax outdoors during the pandemic only helped boost rentals, he says.

outlook

While self-storage fundamentals are strong in Phoenix and Tucson, local experts advise caution due to rising labor and construction prices for homes, self-storage facilities, and commercial buildings. “The materials are getting really expensive,” notes Worden, while Jurjevich emphasizes that the “foamy” nature of the situation increases the price of “everything”.

Industry competition is also intensifying, particularly in the Phoenix area, although most insiders remain optimistic about Phoenix and Tucson and the state as a whole. “Arizona attracts so many people with its diverse opportunities that span a variety of interests, including recreational and outdoor pursuits, dynamic career opportunities, a low cost of living, and an overall high quality of life for many income brackets,” says Jurjevich. “For these reasons, it has created many needs that have to be met by self-storage.”

Monty Spencer is CEO of the Storage Acquisition Group, which specializes in the nationwide acquisition of off-market self-storage facilities and portfolios. The company also provides market research reports, underwriting and closing support. For more information, please call 757.867.8777.

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