Self-storage projects around the Portland-metro area are on hold amid a burst of oversupply, and few are likely to be built anytime soon, according to analysts and developers.

For years, Portland has been one of the nation’s busiest markets for self-storage construction. In the Pearl District, for example, inventory has risen from 250,000 square feet five years ago to 550,000 square feet today.

“The negative is Portland is the number one most overbuilt market in the world,” said Kevin Howard, owner of Northwest Self Storage, a large operator based in Clackamas with 97 facilities around the region. “Not just in the country – in the world.”

Rental rates in Portland for 10-feet-by-10-feet climate-controlled units have dropped 10 percent since 2017, according to a Cushman & Wakefield report released July 7.

Self-storage companies were attracted to Portland, which was touted along with Denver and San Antonio as a growing market. Self-storage has some of the highest operating margins of any real-estate class – upwards of 60 percent to 70 percent margin on net operating income, according to Cushman & Wakefield. High-dollar sales helped pique interest.

“There was a lot of pent-up money,” Howard said. “Developers were looking to release that money.”

More recently, however, in-migration has slowed and the COVID-19 pandemic sent shockwaves through the economy. And as developers rushed to meet demand for self-storage, they quickly exceeded it.

Portland was among the leading markets of a long expansionary bubble, with construction spending on storage nationally surging 584 percent from January 2015 to January 2020, according to the U.S. Census Bureau. Yardi Matrix, a national real estate analysis firm, recently forecast new self-storage deliveries in the U.S. to fall 52 percent by 2023, Cushman & Wakefield reported.

Some local projects were paused, and may never be built. A six-story self-storage facility from Hoyt Street Properties in the North Pearl District was approved by the Portland Design Commission in April 2018. Construction of the 129,520-square-foot facility designed by MCA Architects has not begun.

“We have put the project on hold for now,” Tiffany Sweitzer, president of Hoyt Street Properties, stated in an email. “We still think storage is a viable option for a future project on our property, but just not sure when we might take up the project again. Given the density built in the Pearl, this would be a great asset to those living in both condos and apartments.”

Hoyt Street Properties would have more time to begin building the facility under a plan being considered by the City Council to extend development deadlines. If proposed amendments were approved, the project team would have until Jan. 1, 2024, to begin construction.

Northwest Self Storage recently opened a new facility at 4716 S.E. Powell Blvd. Before that, the company built one on Southeast 82nd Avenue. Another facility opened in Camas, Washington, after a lengthy delay in obtaining an elevator inspection because of the pandemic, Howard said. But no more will follow in the foreseeable future, he added.

“That’s all on hold,” he said. “Obviously, with this kind of market, there’s a couple of them I wish I hadn’t built.”

Others stopped short of construction. A PacTrust proposal to build a multistory storage facility north of Benson Polytechnic High School went before the Portland Design Commission for design advice in 2018, but the project has not moved forward.

Occupancy has held up amid the pandemic, Howard said. Few people are moving, but some renters are consolidating apartments or moving back in with their parents and need storage, he said.

Other large self-storage projects have popped up around Portland, including West Coast Self-Storage, a four-story (three above grade) building at Southeast McLoughlin Boulevard and 17th Avenue; and Extra Space Storage, a four-story, 126,820-square-foot facility at 685 S.E. Division Place that is part of a Salt Lake City-based chain. Both projects were completed in 2019.

Storage unit rents in the Portland-Hillsboro-Vancouver area fell 4.9 percent in May, compared to a year earlier, according to a survey by Yardi Matrix. The metro region remained among the most expensive self-storage markets in the U.S., with the 10th-highest rent among the top 100 markets. The average rent for a standard unit was $135 in May.

Nationally, self-storage has largely avoided the rush of consolidation that has transformed other industries. Approximately 20 percent of the market is owned by the five largest real estate investment trusts – Public Storage, Extra Space Storage, CubeSmart, Life Storage and National Storage Affiliates (NSA) – while the remainder is owned mainly by small operators, according to the Cushman & Wakefield report.

“Self-storage remains relatively resilient with minimal fundamental changes to underlying drivers of demand in the long term,” the analysts stated.

Yet in Oregon’s largest city, the expansion has created a massive oversupply, Howard said.

“It’s a bloodbath in Portland,” he said.

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A three-story building with self-storage space and ground-floor retail space could be coming to the Lloyd District next to Benson Polytechnic High School.

Developer PacTrust is proposing a building with a 37,500-square-foot footprint at Northeast 12th Avenue and Irving Street. The building would have a 350-foot-long façade facing Benson High along Irving Street. It would reach to 40 to 45 feet in height.

The design is by Mackenzie. The project team received design advice from the Portland Design Commission on Thursday.

The project comes amid strong growth in Northeast Portland’s multifamily market. Projects such as American Assets Trust‘s Hassalo on Eighth have added thousands of apartments to the area.

As a result of Portland’s growing population, the self-storage market is booming. Several new proposals call for self-storage facilities, including U-Store Pearl under the Fremont Bridge in the North Pearl District. That project is from local developer Joe Weston and Hoyt Street Properties.

“It seems that storage is the new multifamily housing, and we’re going to see a lot of it,” Design Commission Chairwoman Julie Livingston said. “It would be good to have some examples to point to.”

The PacTrust project would offer a coffee shop and a small courtyard at Northeast 12th Avenue and Irving Street to activate the streetscape. Brick and metal panels would form the exterior.

Livingston asked Mackenzie senior associate Adam Solomonson why the building’s exterior couldn’t be completely brick. “I didn’t want it to be so similar to Benson High School as to make it look like a portion of Benson High School,” he replied.

Commissioner Andrew Clarke seconded the notion that an all-masonry building would better meet design guidelines.

The building would be visible to drivers on Interstate 84, just north of the project site, as well as neighboring surface streets.

Design commissioners said some of the exterior materials needed refinement.

“It seems to me this is a building looking for a concept,” Commissioner Don Vallaster said. “It’s not there yet.”

PacTrust purchased the parcel for $5.6 million in February 2016, according to public records.

Weston owns to the east of the site a neighboring 4-acre parcel that he purchased for $28 million in September 2017. In a letter to the Design Commission, Weston asked why he wasn’t notified of the PacTrust project. He asked the commission to reschedule Thursday’s meeting, but wrote that he didn’t oppose the project. “I offer no objection if a self-storage facility goes on the subject site if the zoning will allow it,” Weston wrote.

As Thursday’s meeting concluded, PacTrust Vice President for Asset Management J. Benjamin Chessar declined to comment on the project’s economics, saying it’s too early in the design review process.

The project is scheduled to return for another design advice hearing on March 1.

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A new self-storage facility is on the rise in Portland’s Central Eastside. Deacon Construction is building the Mackenzie-designed project for Baranof Holdings, a Dallas, Texas-based developer that specializes in storage facilities.

The building is under construction on a half-block of Southeast Belmont Street between Seventh and Eighth avenues. The six-story structure will consist of three structural steel levels over three levels of post-tensioned concrete. Currently, crews are installing pan decking for the sixth-floor deck, which will be poured later this month. The project is slated for completion next summer.

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