Toti and Mehta noted that unlike previous recoveries in which supply initially increases in low-barrier markets, developers today are targeting the highest-tier, coastal, so-called A markets. That is because lenders are more willing to fund projects in these less risky areas, such as downtown Bethesda, Md., where cranes rise above the busy streets. Once considered a suburb of Washington, D.C., Bethesda is now a prime urban market, and developers and REITs such as ederal Realty Investment Trust are reaping big rewards, despite what some call an overheating market.

“We’re not concerned about any of that,” said John Tschiderer, vice president of development for Federal Realty. “I think a lot of it is location-driven and place, quality of place-driven, and in our investments our locations are strong, based on transit and the quality of what we build.”

Apartment vacancies fell to just 4.2 percent nationally in the first quarter, down from 5 percent a year earlier, according to Reis Inc. That pushed rents higher by more than 3 percent year-over-year.

“Analysts have wondered how rents could keep climbing when jobs are being created at a sluggish rate and wage growth has been relatively stagnant,” Reis economist Victor Calanog wrote in a recent report. “One answer is that the moribund housing market left households with little choice but to absorb rent hikes, but with the housing market now recovering, does that mean the tide is turning against landlords?”

(Read More: Boomers a Boon to Urban Home Builders)

Article source: http://www.cnbc.com/id/100646124

That means self-storage REITs (real estate investment trusts) that have above-average exposure on the eastern seaboard could see a surge in demand ahead. Cantor Fitzgerald expects Extra Space Storage
[EXR 
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](NYSE: EXR, SELL), Sovran Self Storage
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] (NYSE: SSS, HOLD), and CubeSmart
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](NYSE: CUBE; BUY) will see the bulk of the demand, and that will drive revenue growth in the first half of 2013.

Extra Space Storage which has relatively high exposure in New York and New Jersey, would see the biggest effect, perhaps as much as 33 percent of its portfolio. Sovran comes in second at 24 percent, according to Toti and Mehta.

The play will likely be short-lived, as happened after hurricane Katrina, and there could be a hangover afterward.

“The storage needs generated by hurricane clean-up can last from 6-18 months,” the Cantor Fitzgerald analysts warn, “then recede, which can set the stage for declining occupancies and more competitive pricing.”

The self-storage REIT sector is up 13 percent year-to-date, underperforming compared to the RMZ (overall REIT index), but poised to improve over the next several years. The economic and housing recoveries are a positive for storage demand, as more Americans move and companies begin to hire again. The stock of Extra Space is up 40 percent year-to-date, and Sovran is up 36 percent.

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