Economics & Demographics • Section 3


Impact On Housing And Storage Hurricanes Harvey and Irma caused between $150 billion and $200 billion in damage to Texas and Florida, which is compara- ble to the costs from Hurricane Katrina in New Orleans in 2005, according to Moody’s Analytics.


The devastation of Hurricane Harvey destroyed approxi-


mately 100,000 homes, with 15 percent of the multifamily stock being wiped out, Multi-Housing News reported in September. Houston had 25,000 units scheduled to come online in 2017, but Harvey threatens to delay or possibly eliminate new housing in these communities.


Flood recovery in Texas and Florida will take many months


to start and complete. Insurance claims take weeks or months to process in full, while renovations may be delayed by design requirements and availability of local labor resources, according to Seeking Alpha, an online content service for financial markets.


Some homeowners may decide to sell their storm-damaged


homes as is, if their insurance claim reimbursement is inade- quate, and move to a new home in a neighborhood less exposed to flood damage. This likely would increase demand for new homes.


The effects of Hurricanes Harvey and Irma will have a long-


term impact on the Texas Gulf Coast as well as Florida, if not entire regions of the country, as property owners rebuild or relo- cate outside of the affected areas.


Marcus & Millichap reported that Hurricane Harvey displaced


thousands of families as it damaged over 200,000 homes across the Texas Gulf Coast region and southwest Louisiana. Including the number of victims of Hurricane Irma, thousands of families could potentially be looking to store their salvaged possessions while living in temporary housing.


Storage operators often report stronger demand following


a natural disaster as residents look for a place to keep their be- longings while they focus on rebuilding their properties.


The Wall Street Journal reported in September that demand


for self-storage space surged in Houston because of Hurricane Harvey.


The publication reported that Life Storage’s occupancy rate


approached 92 percent in Houston before the hurricane; by late September, the real estate investment trust’s storage space was nearly full. Life Storage officials saw an immediate influx of new tenants since the Houston storm, and expect sustained occu- pancy growth while people rebuild in Florida.


Jernigan Capital, a Memphis storage REIT, however, doesn’t


anticipate a significant growth surge in Florida, since much of the state was spared from Irma’s wrath.


From 2010 to 2015, storage REITs returned more than


150 percent over five years. But the sector’s stock prices dipped 11 percent in 2016, and fell by nearly 10 percent by August 2017, according to Seeking Alpha.


The fear is that a wave of new development contin-


ues to weaken rent growth and pressures occupancy. Union Realtime, a New York technology firm, reports the current construction spending on new storage facilities more than doubled over any prior peak during the last 25 years. This robust building activity has started to hinder occupancy rates at existing facilities. See sidebar on the following page.


Prior to Hurricane Harvey, spot pricing in Houston was


down 20 to 40 percent on a year-over-year basis. Other regions across the country continue to see deteriorating pricing conditions, Union Realtime says.


Self-storage supply has been increasing considerably


over the past three years. Some sources estimate 800 fa- cilities were built in 2016, and an equal number of new self-storage facilities are under construction or in the planning phases in the top 25 metro areas.


2018 Self-Storage Almanac 47 A research analyst for Seeking Alpha, however, ex-


pects rising storage occupancy and rents in hurricane areas to last a year. “Self-storage properties should see an immediate surge in demand in storm-stricken areas, as homeowners and renters alike will need to store their belongings to enable renovations to take place,” Seek- ing Alpha says. “Both occupancy levels and rental rates should improve during the entire time home renovations are under way.”


The turnover of rental units potentially enables imme-


diate rental rate increases. This would be good news for the industry, particularly the REITs, which have hundreds of facilities in the affected regions. Two of the major REITs, Public Storage and CubeSmart, reported slight dips in oc- cupancy during the second quarter of 2017. What’s more, there are indications of price deterioration in some areas.


Until 2016, self-storage REITs were largely heralded


by Wall Street for outperforming other real estate invest- ment trust sectors. Robust rent growth and favorable demographic trends attracted new institutional money into the space.


It’s logical to assume the new and existing storage fa-


cilities that did not sustain significant damage in Houston and Florida will see a flow of new tenants in the months ahead. The Journal reported that, based on experience with past hurricanes, the demand spike after the storm could last up to seven months.


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