Best known for its hip coffee shops, lively music scene, thriving tech industry, and abundance of apples, Washington may soon be renowned for its population size. Though currently the 13th most populous state in the country with more than 7.4 million residents, its numbers are expected to escalate.
With Seattle being third for net migration in the U.S., gaining more than a thousand new residents each week, it’s no surprise that Washington was ranked sixth on U-Haul International’s 2017 list of Top U.S. Growth States. The state managed to climb 10 places on the list in one year. As stated in the company’s press release, “Year-over-year arrivals of one-way U-Haul truck rentals rose two percent, while departures crept up one percent from Washington’s 2016 numbers. Arriving trucks accounted for 50.3 percent of all one-way U-Haul traffic in Washington to catapult it back among the leading net-gain states. Washington held the No. 16 growth ranking for 2016 and was also No. 6 for 2015.”
Per MiniCo’s 2018 Self-Storage Almanac, the state of Washington has 1,232 self-storage facilities and 64,497,664 square feet of storage space for 8.82 square feet per person. Washington also has three MSAs (metropolitan statistical areas) listed in the United States’ top 100 MSAs. The Seattle-Tacoma-Bellevue MSA was No. 15, with 442 self-storage facilities and 23,139,584 square feet of storage space in the market for an average of 6.08 square feet per person. Vancouver, Wash., is included in the No. 25 ranking MSA of Portland and Hillsboro, Ore., with 281 facilities and 14,710,912 square feet of storage, or 6.03 square feet per person. At No. 98 is Spokane-Spokane Valley, an MSA with 561,384 residents, 93 self-storage properties, and 4,868,736 square feet of storage space; this MSA has 8.67 square feet per person.
Approximately 60 percent of Washington’s citizens (about 3.8 million people) live in the Seattle metropolitan area, but the state’s secondary markets are growing at a steady pace. As a matter of fact, three cities in Washington were ranked on U-Haul International’s list of Top U.S. Growth Cities over the past two years. In 2016, Olympia, Wash., came in eighth for cities with populations of more than 50,000. That same year, Longview, Wash., took the third spot for cities with populations of 10,000 to 50,000. Both Olympia, the state’s capital, and Longview are located southwest of Seattle, Washington’s largest city, along Interstate 5. Olympia was included in U-Haul’s 2017 Top U.S. Growth Cities list as well, but it dropped three places to No. 11. Tacoma, Wash., was ranked fifth on the 2017 list.
“Tacoma, Olympia, Puyallup, Bellingham, and Tumwater paced Washington’s net gain of one-way U-Haul trucks. Longview, Lakewood, Port Townsend, Federal Way, and Kent were other notable cities to record strong net gains,” the U-Haul press release states.
Joel Deis, vice president and regional manager at Marcus & Millichap’s Seattle office, and national director of Marcus & Millichap’s National Self Storage Group, has an insider’s point of view about the state and its growing markets. Deis, who has been living there for 20 years, says Washington state is like two states rolled into one. Western Washington has the fastest growing economy, and its population is increasing at a breakneck pace. Central/eastern Washington is experiencing notable job growth as well.
From the central and eastern parts of the state, Deis mentions two MSAs that are starting to flourish: the tri-city area of Kennewick-Richland-Pasco, which has half a million residents, and Spokane.
Deis notes that Washington’s absence of income tax may be partially responsible attracting new residents to the state. “There’s a tax advantage,” he says. “Washington is a tax-free state. There is no state income tax.”
In addition, residents within the state can enjoy one of the country’s highest minimum wage at $11.50 per hour. It’s second only to the District of Columbia, which has a minimum wage of $12.50 per hour. However, the state will be gradually increasing its minimum wage over the next few years, reaching $13.50 in 2020—nearly double the current federal minimum wage of $7.25. Moreover, because there is no tax on earned income, as mentioned in the last paragraph, working residents get to keep every cent of their elevated wages, resulting in more disposable income for products and services such as self-storage.
But Deis emphasizes that the main driver of migration to the state is job growth, which Washington has been consistently experiencing over the last several years. “Investors are looking for job growth and tourism,” he says.
Many of the state’s well-known tech companies, including Boeing, Nintendo, Amazon, Google, Microsoft, Expedia, and Facebook, are hiring, which has surely attracted hopeful candidates. Along with an increase in tech jobs, there have been more jobs available in the mining, logging, and the construction sector.
“There are lots of new businesses,” says Deis, who mentions that the state’s highly educated workforce is appealing to companies. He adds that there is an emerging wine business in Washington as well. In fact, its wine industry is now the second largest premium wine producer in the U.S., with more than 900 wineries and more than 350 wine grape growers.
What’s more, although no one can give any guarantees, migration to Washington isn’t expected to slow drastically or come to a screeching halt in the near future. In reality, Deis asserts that the state has anticipated continued growth and is extending its light rail system to offset the mounting traffic issues and swelling commute times. Deis adds that his own commute time has tripled from the influx of new residents and expanding businesses.
Robust Storage Demand
As Deis points out, job growth clearly spurs migration. In turn, migration drives self-storage demand. Therefore, self-storage demand in Washington state should be expected to increase. This is especially true if the people migrating to Washington are mainly tech-savvy millennials who tend to be renters or families that must temporarily downsize to smaller dwellings.
With that being said, self-storage investors who want to enter the state or expand their presence should consider looking for possibilities to do so. According to Deis, Washington’s self-storage acquisitions market offers solid opportunities. “Sellers can get out at a good price, and buyers can grow revenues,” he says. “It’s a good tradeoff for both sides.”
Nevertheless, since the two sides of the state greatly differ, it’s imperative to keep in mind that rental rents, land costs, and barriers to entry do vary. Deis points out that infill sites can cost $150 and up per foot at a five to six percent cap rate depending upon the quality, location, and size. Investors can save about $50 per foot in central and eastern Washington, where costs are approximately $100 per foot at a six to seven percent cap.
As for property types, Deis says that self-storage facilities in the central and eastern parts of Washington state are mostly single-story, drive-up. He adds that local builders in those areas have been sitting on the land. In western Washington/Puget Sounds, Deis notes the cost of land limits the parcel size for development.
“Improved architecture designs improve curb appeal and aesthetics,” he says. “Self-storage is no longer an interim use; now it’s a long-term investment and longer horizon.”
Deis goes on to say, “There’s lots of equity coming into the state and lots of properties trading hands.” Generally speaking, he also notes that self-storage has longer terms exit strategies; he recalls only one facility that was purchased and then sold in less than five years.
Considering the healthy migration trends and steady job growth, self-storage investorswould be wise to take a closer look at Washington. “It’s like a hidden state,” says Deis, adding that the possibilities are plentiful.
Indeed, when it comes to self-storage, some may say that Washington is ripe for the picking.
Erica Shatzer is the editor of Mini-Storage Messenger, Self-Storage Now!, and Self-Storage Canada.