Introduction
Basic investment strategy is to buy at the bottom of a real estate cycle and to sell at the top. The impact of cycles on real estate performance and therefore wealth has proven to be extremely important if the investor wants to outperform the competition and beat the market averages.

Outperforming the Competition and Beating the Market Averages
The 2007 Texas Self-Storage Market Survey will help self-storage owners do both, outperform the competition and beat the averages by helping them see where their local self-storage market falls within the real estate cycle. Contrary to popular belief, not all markets are in the constant state of expansion. All real estate markets pass through four phases, i.e., recession, recovery, expansion and contraction. Real estate returns, risks and investment values are impacted by where the local market is in its cycle.

The Texas Self-Storage Market Survey is the only source for the information needed in order to be aware of a specific market’s position in the cycle, i.e., are conditions likely to improve, or is the market about to become overbuilt. This is the third year the survey has been conducted, and now the local market trends are emerging that will help owners understand the local market conditions.

The self-storage industry has not experienced a normal real estate cycle because it has been building to a pent-up demand since its inception over 30 years ago. In the past when a new facility opened, its competition’s rental rates would cease to increase for a short time. Perhaps the competition would have to offer more concessions, again for a short time, before everything would return to normal. These periods of temporary over supply could be thought of as a ‘short’ cycle. The time between the Peak and the Trough was brief, usually a matter of a few months. Depending upon how overbuilt a market becomes, the time between the bottom and the top of the cycle could be years, not months.

For over 30 years, we have been adding to the existing supply of space. Now many markets have passed the point of balance between the supply and the long-term demand. In the past, the only tool for measuring demand has been studying the number of square feet per capita. As long as demand is measured in this way, the markets will continue to be overbuilt. The Texas Self-Storage Survey provides a statistically reliable alternative tool for measuring demand, i.e., third party generated unbiased data that tracks performance over time.

We Can No Longer Generalize About Market Conditions
Market conditions can vary greatly as is demonstrated by the difference between two of Texas’ largest metropolitan areas. According to Self Storage Data Services, Inc., (SSDS) physical occupancy in the Austin-Round Rock MSA in the 1st quarter 2007 increased 2% notwithstanding a 7% increase in asking rental rates. Dallas-Fort Worth-Arlington’s MSA was a different story. Asking rental rates in the Dallas market declined nearly 3%, and still physical occupancy dropped 2%. Parts of Texas saw declines in the amount of rent collected of nearly 10% in the 1st quarter on a seasonally adjusted basis.

How to Benefit from the Survey
The people who will benefit the most from this study will be those who have a facility located in a market where a lot of competitors participated in the survey. Therefore, don’t just submit your own data, but encourage your competitors to do the same.

Knowing the national or regional market conditions are interesting, but what is happening in Dallas, Houston or Austin is of little help if you operate outside a major market area. Owners can no longer operate in a bubble and expect to remain competitive. The markets have become so competitive now that supply has reached its current level.

While your facility might be performing well currently, that does not mean it will continue to do so in the future. The purpose of the survey is:
• To help owners and others to understand the direction the local market is headed. Is it just marginally overbuilt, or is it becoming severely overbuilt?
• To provide owners the tools to allow them to measure their facility’s performance against a benchmark of other local competitors.
• To help the owner who is having problems raising rents and maintaining stabilized occupancy to know if it is a management problem or a market problem.
• To let owners know whether the majority of their competitors experienced the same decline in occupancy after rising rents, and
• Provide owners with the knowledge about the trends in concessions and discounts.

You know your market is in the Expansion Phase, (also known as the Improving Phase) when rental rate increases are accepted by the tenants without question, physical and economic occupancy remains high and the need to offer concessions or discounts is inconsequential.

When rental rate increases are harder to push through, when economic occupancy starts to decline and the need to offer concessions or discounts becomes increasingly important in order to compete, the market may have peaked and is entering the Contraction Phase.

The Study
The Texas Self-Storage Survey contains comprehensive data on Texas’ 25 Metropolitan Statistically Areas (MSAs) as well as on the rural markets. The study however is only as good as the information that is contributed. Talk to your competitors and encourage them to participate. The data remains confidential and only the aggregated results are reported. Helping to prevent local markets from becoming overbuilt is a win-win for everyone. Developers certainty don’t want to learn too late that demand has already been satisfied. Existing owners will be better prepared to protect their investment by knowing in advance that they will need to budget for additional advertising, and for the cost of having to offer more concessions in the future.

Your association is working to help its members protect their investments by providing information not available anywhere else. By participating in the survey and encouraging your competitors to do so as well, everyone benefits.