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While there are some consistent drivers of growth in the self storage industry, there are still differences you'll see from market to market as well.
The drivers of growth in your market may differ in subtle but still-significant ways from other markets.
What are the greatest growth drivers in different regional markets? John Chang of Marcus & Millichap joins us in this Gabfocus Spotlight to talk growth and what drives it in various markets.
Question: "What are some drivers of different growth in different regional markets?"
Check out the video clip below to hear their answers:
In this Gabfocus Session: State of the Industry 2023, John Chang of Marcus & Millichap joined us to discuss the state of the economy and of the self storage industry. He took us on a walk through everything from potential recession to rental trends among millennials.
Check out the full Session to dive deeper!
Let me start with kind of the other end of the spectrum.
Let's look at, say, a Florida or a Texas, where you may have seen over the last five years inventory growth of 20%, 30%, 40%, 35%. Maybe in, say, Tampa, Orlando, or Phoenix, maybe around 35% inventory growth over the last five years. And there's a variety of other markets that are seeing that.
But those are markets where you've seen just tremendous development.
On the other end of the spectrum, you think about building anything, self storage, apartment building, anything in California in general, but specifically, like the Bay Area, that is like a generational process, right?
I could start the process today. Maybe my children can finish it in 30 years. It's not that bad, but it can be a real bear because there's all sorts of studies that have to be done. It's very expensive, and it can be challenged at any point.
And as everybody here on this call knows, people love it when you put a self storage facility up in their neighborhood, it's one of the top things that people want to see.
Right outside there, the entry sign of their neighborhood is a self storage facility. So California is really challenging. And so where we're seeing over five years, 30%, 35% inventory growth, national average, 20% inventory growth over five years. In California, you're looking at 10% inventory growth over that same five years, maybe five in some areas. And so it's very stable operationally.
You don't have to worry about new competitors. In most of those markets, maybe in Sacramento or the Central Valley or the Inland Empire, you get a little bit more. But in core metros of Bay Area, LA, Orange County, San Diego, it tends not to be as much risk.
And so, as a result, your occupancies tend to stay higher.
You don't have new supply risk. Your demand drivers may be good or bad. And quite frankly, in that call, one of the people was saying, hey, I'm losing tenants in the Bay Area. I don't normally do that. What's going on? Is this a tech thing? What's going on?
But San Francisco has got some challenges right now. You got some crime, you have homelessness, you have the tech firms doing layoffs and all that sort of stuff. So that's affecting the demand drivers in the Bay Area, but you don't have to worry about new supply. And that's the other side of the equation, and it's very different. And to a degree, that's true in, say, a Seattle, maybe a Portland, the Northeast, Boston, New York, markets like that tend to be much more difficult to build.
And on the other end of the spectrum, as I started out with, you got a Florida, you got a Texas, you got a Phoenix, Arizona, I think Atlanta, Charlotte, Nashville, you're going to see a lot more development taking place. It's much easier to develop. There's a lot less barriers to entry, and you're going to have a more fluid real estate market, but you're going to have a lot more population coming in, so it's faster moving, I guess, is probably a good way to put it."