You’re in the same business as multi-billion dollar companies - they’ve got financial analysts to predict the market and teams of researchers.
Feels a bit unfair, doesn’t it?
But the self storage industry is nothing if not helpful! Our friends at Argus Self Storage Advisors have put together a Pricing Discovery and Market Uncertainty talk looking ahead at 2024 - and we’ll pull out some of the highlights for those who don’t have time to watch!
Across the industry, operators are seeing a slow-down in demand for self storage units.
There are exceptions! Some operators are still having customers beating down their roll-up doors. But lots of folks are starting to feel a pinch, especially if their facility opened in the last year or two and they’re paying relatively high interest rates while trying to lease up.
It’s not all bad news, though. Argus’s experts were decidedly optimistic about the market while acknowledging some of the difficulties we’re all facing.
Let’s start with the bad news:
The industry has been sailing into a lot of headwinds in the past two years.
Inflation, for one thing, has made people more conscious about their spending, and often their storage unit is deemed unnecessary.
There’s been political unrest, two major wars, union strikes, and even a handful of bank failures. Lots of analysts were predicting some serious economic recessions to hit the US.
So far, that hasn’t happened. In fact, the economy is doing much better than expected, with the GDP growing 5.2% in Q3 of 2023 according to the Bureau of Economic Analysis.
Better than expected, but the expectations were pretty bad - storage facilities are still hurting.
Yardi reports income for self storage operations is down 4-5% Year over Year. That’s not fantastic.
Analysis of REIT public reports and Argus’s own information shows that overall occupancy across the industry is down 2-3%.
Those numbers together show that occupancy is down, but rental rates are going down too.
If your facility was recently opened and only makes money under 2021 conditions, this downturn could be devastating - you could find yourself in the red quickly, with high interest rates and a facility that isn’t meeting expectations.
Operators can either drop prices or increase marketing to try and stimulate demand.
Argus recommends dropping rates to increase demand, rather than spending more on marketing.
One important point to remember is that even though we’re doing worse now than we were doing last year, the industry is still doing significantly better than it was before the pandemic.
The biggest piece of good news is that rental rates are still 8.7% above pre-pandemic levels!
The industry is in good shape overall, according to Argus (and other experts), though it may not feel like that if you’re seeing units sit empty that should be full.
While there might be a little bit of contraction, especially for operators that are overleveraged, self storage is still growing - just not at the rapid pace it was in 2021.
The overall uptake for self storage per household is increasing. Thirty years ago, only 2.5% of households used self storage - today, that number is well over 10%!
Storage renters are getting younger, too. 70% of customers are under the age of 57, and 53% are under 43. Younger renters are making more regular use of storage units, which implies they are more committed to using a storage unit.
One of the best pieces of news out of this presentation is that Q4 2023 is outperforming Q4 2022. Again, these are general numbers from Argus and publicly available REIT data, but it proves that the industry as a whole is doing ok - we may even be on the way back up after slumping a bit this year.
The pandemic drove some incredibly high numbers for the industry. 2021 and early 2022 saw more use of storage than ever before. This, coupled with the fact that most other industries did much worse, brought a ton of money, new investment, and new projects to self storage.
With inflation and the accompanying interest rate increases, running a facility has become more expensive; this would have been fine if demand kept up with 2021 numbers. Without the pandemic, though, consumers are spending more of their money on experiences and services - and these don’t need storage.
The key takeaway? Argus’s experts don’t see a lot of distress in the industry. Some facilities are struggling and will struggle, because the boom years are behind us, but overall the industry is healthy.
Here are the headline takeaways we pulled from Argus’s Market Report:
A mix of good and bad up there. Self storage is not doing as well this year as it did last year, but the outlook is improving. We had unprecedented highs in 2021, and now we’re sinking back to the average.
Seasonality is coming back, too. Instead of constant demand, demand will come in waves (usually higher during the spring and summer, then falling off during the colder months).
So, if you’re wringing your hands looking at red numbers, be patient. The outlook is pretty good, and self storage winter won’t last long!
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