How Economic Conditions are Molding the Landscape of the Self-Storage Industry
This post examines how various economic conditions are shaping the self-storage industry, with a focus on interest rates, the housing market, development, consolidation, and rental rates.
In today's dynamic economic environment, the self-storage sector is proving its inherent resilience despite experiencing the whips and lashes of the broader economy. The sector has seen a steady decline in rental and occupancy rates over the last quarters, primarily driven by elevated interest rates, a slow pace in home sales, and shifting population dynamics.
Despite this challenging backdrop, the industry's adaptation mechanism is poised to ensure the survival of savvy owners and investors and potentially set them up for long-term success.
The recent data from Yardi Matrix, an industry analytics provider, indicates that the number of self-storage users has risen to 14.5 million in 2022, a significant increase of 970,000 from 2020. Over the last nine years, U.S. storage facility owners have seen a nearly 17% annual return on their investments - reflecting the sector's robustness even in the face of adversity.
The economic reverberations of COVID-19 sparked an unexpected surge in self-storage demand, leading to a whopping 180% rise in asset sales volume from $8.4 billion in 2020 to $23.9 billion in 2021.
Austin McLeod, vice president of Matthews Real Estate Investment Services, offers a valuable perspective on the current state of the industry that could help professionals navigate these unusually rocky waters. As an expert in investment sales, McLeod is acutely aware of the challenges and opportunities arising in today's self-storage landscape.
Growing interest-rate volatility, surging home prices, limited housing inventory, and a marked slowdown in the growth of self-storage street rents collectively contribute to the current decline in self-storage demand.
Conversely, ongoing consolidation in the industry, with major mergers like that of Extra Space Storage and Life Storage, and Public Storage's acquisition of Simply Self Storage, suggests a drive towards achieving significant scale for operational efficiency.
Looking ahead, the slow progression of the housing market and the stability of interest rates so far in 2024 imply a potentially sluggish self-storage leasing velocity in the coming months. Investors are urged to practice caution when underwriting new ventures or evaluating development sites.
🔒📚 Hi! I'm Eric Manning, a self-storage operations nerd and lifelong learner. 🗝️ My articles blend industry know-how with a dash of humor and wisdom. Whether you're a storage newbie or a pro, join me as we explore the world of storage, one witty insight at a time! 📦😊🔑