MARKET REPORT

SELF-STORAGE SECOND HALF 2019

Baltimore Metro Area

Economic Trends Employment Trends

2019 Employment Forecast: g 0.7% Absolute Change Y-O-Y% Change
40 4%

Total Nonfarm Jobs (000s)

Year-over-Year Change
Baltimore has had a lackluster start to 2019, posting a net loss of 900 positions through
the first six months of the year. In 2018, the metro expanded payrolls by more than 30 3%

20,000 roles, with the business and professional services and the education and health
20 2%
services sectors adding 7,100 and 8,300 jobs, respectively. While positive hiring is expect-
ed in the second half, annual employment growth will remain under 1.0 percent.
10 1%

0 0%

Demographic Trends
15 16 17 18 19*

2019 Population Forecast: g 0.1% Demographic Trends

Population Growth Household Income
Population growth in Baltimore has been on the decline, with a minimal 0.1 percent rise 6.0%
in the metro population over the past four quarters ended in June. In contrast, household

Year-over-Year Change
growth has been relatively strong, increasing by 0.6 percent in the recent yearlong period 4.5%

as a result of the prolonged economic expansion. With the unemployment rate below 4
percent in the metro, more people are holding jobs and in turn exploring new housing 3.0%

options such as living independently.

1.5%

0%

Supply and Demand Trends 15 16 17 18 19*

2019 Construction Forecast: 852,000 square feet Supply & Demand Trends
Construction Vacancy
Self-storage development through the first half of this year has been modest, with
1,000 10%
255,000 square feet of space delivered. Last year, 800,000 square feet opened.
Completions (000s)

2019 Vacancy Forecast: h 30 basis points 750 9%

Vacancy Rate
500 8%
Strong demand absorbed last year’s strong deposit, compressing the metro vacancy rate
50 basis points to 7.9 percent. Slower development this year will influence further tight- 250 7%
ening, bringing the market rate to 7.6 percent.
0 6%
15 16 17 18 19*

Rent Trends Rent Trends

2019 Rent Forecast: g 0.8% Metro United States

The metro rent growth will rebound in 2019, lifting the monthly rate to $1.31 per square $1.60
foot at the end of the year. In 2018, the inflow of new supply contributed to an overall
Rent per Square Foot

decline in the average rent rate, as more properties offered concessions to boost the lease $1.20

up process.
$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.
 $45

Aver
4%

$30 2%
15 16 17 18 19*

Northeast Northeast Region Investment Trends

Average Price and Cap Rate Trends
Average Price Cap Rate
After a dip during the previous annual period, transaction velocity increased in the
$200
10% Northeast Region in the 12-month period ended in June. In that span, the average sale
price rose to $180 per square foot and the average cap rate declined 20 basis points to 6.5
Average Price per Sq. Ft.

$170 8% percent. Above-national average rents support some of the highest entry costs in the U.S.

Cap Rate
$140 6%

$110 4%
CAPITAL MARKETS
$80 2% By DAVID G. SHILLINGTON, President,
15 16 17 18 19*
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% South
User/Other tariffs would be levied, sparking a flight to safety and the recent inversion of
Average Price per Sq. Ft. Percent of Total

Average Price and Cap RatePrivate

Trends
50% the 10-year and two-year Treasurys. Though the Fed’s 25-basis-point reduction
Average Price CapREIT/Listed
Rate
of the overnight rate and early end to quantitative tightening could pose some
$100 Institutional 10%
25% inflationary risk, the Fed has communicated a willingness to let the economy
$80 8%
“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
Cap Rate

15 16 17 18 19**
$60 6% the trade war and the Fed’s efforts to boost the economy, will bolster leveraged
* Trailing 12 months through June 2019
** Year to
$40date as of Aug. 12 yields for investors by a small degree as lenders also look to widen spreads. With
4%
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
$20 2% last October and recently touching its lowest level since the record low set in
15 16 17 18 19*
Edited by 2016, investment options that may not have penciled even in the second quarter
Cody Young
Research Analyst | 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 Northeast Region encompasses Connecticut, Delaware, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, instituting rate floors. While market forces are allowing assets to be readily
Pennsylvania, Rhode Island, Vermont 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.
Baltimore Office:
Bryn Merrey
Senior Vice President, Division Manager
Tel: (202) 536-3700 | bryn.merrey@marcusmillichap.com

100 East Pratt Street Suite 2114

Baltimore, Maryland 21202

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.