Portland had one of the highest rates of development of self-storage facilities in the country in 2018.
It is well-known how Amazon has transformed the retail sector as millions of Americans turn to the e-commerce website to buy products at the click of a button. Less known is the broad-reaching effect Amazon is having on the commercial real estate sector.
In Oregon there has been a surge in demand for mini warehouse facilities and self-storage space from business owners who sell or store products sold on the e-commerce site. Amazon charges fees for storing inventory, so many small online retailers buy their own warehouse space or rent self-storage units to fulfill customer orders.
As a small-business lender in the commercial real estate space, Alex Cohen, CEO of LibertySBF, notices growth trends in the sector firsthand. He has seen strong demand for self-storage and warehouse space in Portland, where the population surged 11% between 2010 and 2017.
“A lot of our borrowers are Amazon resellers,” says Cohen. “The big headline is the decline of big-box retail and the ascendency of e-commerce. We feel that on the lending side.”
LibertySBF lends to small businesses that want to own the property in which their businesses are located, a market known as owner-user. In Oregon the value of real estate deals from business owners buying their own self-storage units jumped to $10.9 million in 2018, an almost four-fold increase from 2016, according to data from CoStar Group, a provider of commercial real estate information. The market peaked in 2017, when transactions in the owner-user market grew to $14 million.
Small online retailers are also increasingly renting space at self-storage facilities — a market dominated by large players such as Public Storage and Extra Space Storage. Businesses, especially small online retailers on platforms such as Etsy and eBay, are increasingly using self-storage and mini warehouse facilities to store their wares, according to an IBISWorld report. Commercial users of storage facilities accounted for 18.4% of industry revenue in 2018.
Changing demographics are also boosting demand for storage facilities: More people are moving into cities, millennials and retirees alike, where housing is smaller and denser, and storage space is limited. More people are renting, too, as house prices surge, adding to the demand for self-storage.
Real estate transactions in the residential self-storage market in Oregon totaled $67.7 million in 2018, a 33% increase from 2014, according to CoStar Group. Both Portland and Nashville, Tenn., had the highest rates of self-storage facility development in 2018, according to Yardi Matrix, a real estate market analysis firm.
However, there are signs the self-storage market is softening in Portland, where rental rates declined 6% last year.
Developers of self-storage units also face opposition from residents who live near planned developments. A self-storage facility proposed on the site of a former nursery and garden center on 62nd and Powell Boulevard in Southeast Portland has come under attack from local residents, who complain the development could attract crime and set back development in the neighborhood.
Nevertheless, the storage and warehousing market remains one of the fastest-growing sectors of commercial real estate. And with the growth of e-commerce showing no signs of abating, demand for storage space for customer fulfillment will remain strong.