Market Watch: New Orleans

Self-Storage In The Big Easy

New Orleans is considered to be one of the most unique cities in the world. From the French Quarter and the food to the history, there is no place quite like it. New Orleans is also one of the oldest cities in America, founded in the early 1700s due to its strategic location at the mouth of the Mississippi River. New Orleans was deemed so important that the Louisiana Purchase was made for the primary purpose of securing the city. Today, the city has more than 35,000 buildings on the National Register of Historic Places.

Over the past 15 years, the New Orleans MSA has been at the epicenter of two major crises: Hurricane Katrina and the BP Oil Spill. Hurricane Katrina hit the Louisiana coast as a Category 3 storm in late August 2005, and the New Orleans metropolitan area was in its path. The storm surge and levee failure wreaked havoc on the area. In turn, the MSA lost approximately 25 percent of the population immediately thereafter due to related deaths and a housing shortage. Only now, more than 10 years later, has the New Orleans MSA population recovered to levels near the 1.3 million residents recorded in 2005.

As the MSA was recovering from Hurricane Katrina, the BP oil spill occurred in April 2010. Considered the largest accidental marine oil spill in the history of the petroleum industry, the oil spill devastated marine and wildlife habitats, impacted the fishing industry, and decreased demand for tourism along the entire Gulf Coast.

While these incidents had an adverse impact on the economy as a whole, the self-storage industry was impacted in both positive and negative ways. After Hurricane Katrina, damage reduced the supply of facilities; therefore, the occupancy of the open facilities increased dramatically. In the years following the storm, developers built new facilities to meet the ongoing demand for storage during the rebuilding process. While the BP Oil Spill did not impact the supply of storage, the overall decline in the economy impacted the demand for storage.

Today, the New Orleans MSA continues on its path to recovery. The Port of New Orleans remains an important facet of the economy, along with aerospace manufacturing. Lower oil prices have, however, diminished the outlook for New Orleans’s energy-related industries. Tourism has remained strong over the past few years. In fact, tourism spending hit an all-time high in 2015.

Self-Storage Supply

According to the 2017 Self-Storage Almanac, the New Orleans-Metairie, LA Metro Area has 155 self-storage facilities that total approximately 8.1 million square feet of storage space. Based on a 2016 population of over 1.2 million, the New Orleans MSA has a supply of 6.43 square feet of storage per person. This per-person supply figure is below the Louisiana state figure of 9.28 square feet of storage per person.

The supply of facilities in the New Orleans market varies from mom-and-pop facilities to converted buildings to purpose-built facilities. Product also ranges from small single-story structures with few amenities to multi-story projects located near the central business district.

The majority of the national brands are located in the market, including Public Storage, Extra Space Storage, CubeSmart, Safeguard, and U-Haul. However, all the facilities owned or managed by the national brands are located in or near New Orleans proper, south of Lake Pontchartrain (also known as the East Bank and West Bank, in relation to the Mississippi River). The supply of self-storage facilities on the North Shore (north of Lake Pontchartrain) is dominated by regional brands such as A Storage Inn, Liberty Storage, and Omni Storage. The supply of new storage facilities in the market is limited; therefore, the risk of overbuilding appears to be minimal.

Due to the long history of the city and the lack of available land near the central business district, New Orleans features some interesting storage conversions:

Self-Storage Demand

Demand for storage in the New Orleans market comes from a variety of sources, including residential, industrial, and commercial. Specific to this market, New Orleans benefits from a number of colleges and universities in the area. Demand is generated from Tulane University, Loyola University, University of New Orleans, and Dillard University. These universities are all located in the East Bank, which includes the City of New Orleans. Similarly, the percentage of renters within the city limits is as high as 70 percent, which also contributes to the demand for self-storage.

After experiencing above-average population growth figures, as compared to the state and country, the New Orleans MSA is projected to have flat population growth over the next five years. The MSA’s average household income is slightly greater than the average of the state ($70,321 and $65,357, respectively). Therefore, we conclude that demand for self-storage is expected to remain stable as there are no apparent factors in the near future that would have a significant impact.

Investment Outlook

While it may be at the top of people’s “Must Visit” list, New Orleans is viewed by investors as a secondary investment market. In terms of its population, New Orleans is the 44^th largest metropolitan area in the United States. Therefore, sales and development in the market are limited. CoStar reports less than 10 sales in 2016, of which some properties were part of a larger portfolio of properties.

In terms of investing within the state of Louisiana, the New Orleans market certainly is at the forefront, as rental rates are the highest in the state, according to the third quarter 2016 figures from the 2017 Self-Storage Almanac. For instance, the average price of a 10-by-10 non-climate-controlled unit in the MSA is $135 versus the state average of $85. Similarly, the average price of a 10-by-10 climate-controlled unit in the MSA is $159 versus the state average of $123. While New Orleans remains the strongest market in the State of Louisiana, it is not considered a national primary investment market.

Conclusion

Just like the city itself, the New Orleans self-storage market is unique. While it is primarily viewed as a secondary market due to its smaller size, the supply of facilities south of Lake Pontchartrain is dominated by national brands. New supply in the market does not appear to be a major factor, and the demographics indicate stable demand for storage in the near term.

Kate Spencer, MAI, is a managing director and practice group leader of self-storage valuation and advisory at Cushman & Wakefield.