Most adverse impact to investing in a storage reit is:
Obsolecence of space
new competitive facilities
Not sure why the answer would be 2. I thought that the answer would be 1 because one of the main risk for storage reit is the easy of entry and inevitiable lack of space?
I think this may be an interpretation thing.
The text says: “Ease of entry into this growing field has led to periods of overbuilding.” Let’s just reinterpret that to mean because of low barriers to entry, and presumably because there is a profit to be made, new market participants have entered the market to compete, and so have built new facilities (and in fact “overbuilt” new facilities).
Which does that correspond to? 2 right? Obsolescence of space isn’t an outright category (the three are functional, economic, and locational), and there’s an ambiguity as to what it means, but perhaps it could mean functional obsolescence insofar as the shape of the building now no longer caters to the storage demands of the consumers.
In any event, it now comes down to: does being unable to use all the space in a building impact the storage REIT’s profitability more, or does new competition ‘overbuilding’ facilities impact the storage REIT more? Well they both do, but I’d wager oversupply is a bigger adverse impact, hence 2 is the correct answer; that can easily be justified by imagining that the storage reit doesn’t use all its space, not due to inefficient space, but because there are insufficient customers due to oversupply of new competition.
Hope that helps.
You have a warehouse. If I build a bigger and better one, Don’t you think that would dampen the demand for your warehouse which in turn would dampen the value of your warehouse ?
ok, i think the best way to think about it is from an investment standpoint rather than operational standpoint.
operationally we would want more space, but as an investment, this would decrease the value of the storage property, based upon more supply (think “supply/demand curve” in this case).