State of the Industry 2023 | Self Storage Virtual Workshop

Gabfocus Episode 45 | State of the Industry 2023

As we settle into 2023, the market feels anything but predictable.

How are different markets performing? What economic trends are on the horizon? How will this affect storage? Join us as we dive deep into national and regional trends, looking at storage prices, occupancies, and construction pipeline to make sense of storage in 2023.

Featured Speakers: John Chang
Moderators: Tommy Nguyen & Melissa Huff

Category: Owning & Investing
Focus: Owners & Operators
Aired: February 23, 2023
Duration: 1:10:05

Overview

If you don't have time to watch the whole session, here are some of our favorite parts:

At 5:00, John Chang starts to discuss economic trends in the storage industry and the recent phases it has been through.
6:50, our guest discusses the important demographic shifts, especially in relation to millennials.
Starting at 9:00, John discusses a potential recession along with whether or not the storage industry will be greatly affected.
At 12:00, our expert highlights the importance of looking further into the future when planning.
15:20, John talks about how changes in storage and facility types are being driven by the millennial generation.
Around 16:40, John discusses specific demographic changes in more detail.
At 24:55, our guest talks about the effect of the pandemic on street rates.
27:00, John highlights how and where development and construction are picking up again.
Starting at 32:00, our expert digs into different markets and how market growth and occupancy are going in each one.
Around 35:00, John talks about the growth and construction in the southeastern United States.
36:20, our guest chats about which demographics would be more impacted during a recession.
Starting around 39:00, John discusses how the differences in generations are affecting storage types and amenities.
45:00, our expert talks about capital and interest rates, and the current state of both.
Starting at 50:00, John discusses whether you should consider investing further in self storage now or later.
Around 59:50, John tackles a lightning round of quick-fire questions.
At 1:04:00 our guest answers the Question of the Week.

Resources

Question of the Week

We asked our experts: What are the most important economic markers an operator should be keeping up with and why?

One of the things I always track is absorption. Absorption is tied to household formation. If you graph the absorption of self storage space next to household formation, you'll see there is a strong correlation. If you take household formation and graph it against consumer sentiment, there is a correlation. So the University of Michigan Consumer Sentiment Index that comes out every month is the one indicator I would be watching right now. It just bottomed out last year, it reflected inflation and people got scared. Household formation dropped like a rock when consumer sentiment dropped. Now we've started to see it bounce back. What customer sentiment does in 2023 will tell us a lot about the demand for self storage." - John Chang

Key Stats

Over the course of a year, interest rates on capital went from around 3.5% to 6.5%
The average real estate investor will hold their property for between 5 and 7 years
The total supply of self storage units in the country peaked in 2019. In 2020 it went down slightly, and the supply will increase slowly in 2023 and 2024
Vacancies went to a record low (10% to 6%) during the pandemic
Since 2007, we've increased the supply of self storage units by almost 40%. In the same time frame, vacancy rates have gone from 15.5% to 7.5%

What are Gabfocus Sessions?

Gabfocus Sessions are virtual workshops for self storage owners, managers, and operators. Brought to you by the team behind Gabfest: StoragePug and Affordable Storage Guys Management.

Each session features hand-picked industry pros who will dive deep into relevant topics surrounding our industry, share best practices, and explore trends in the market. It's our hope that these sessions help you navigate your self storage business better during these uncertain times.

Want to learn more about self storage? Join us on select Thursdays for Gabfocus.

Questions Answered in this Session

What have been the significant economic storage trends in the last 10 years? In the last few?
What are we expecting in the next 5-10 years?
What major economic trends affect storage the most?
Where are we now with:
1. Street rates?
2. Occupancy?
3. Market growth and saturation?
4. Construction pipeline?
5. Cap rates?
What are the major differences we're seeing between different regions or markets?
How should operators be approaching:
1. Pricing and discounts?
2. Revenue management?
3. Competitor analysis?
4. Expanding or building?
5. New investors?
Are we seeing a shift to more mid-market portfolios?
What are the next big markets?
Favorite unit type or mix?
Is it a seller's or a buyer's market?
What are the most important economic markers an operator should be keeping up with and why?

Resources from this session

Awesome Quotes

“Once your operation is in place, you can become more dynamic with your pricing, but that requires data. You need some method of being able to record the data that you need to know whether your price is in the right place - whether you need to move it up or start giving some concessions.” - Warren Lieberman

“I never want to downplay to what someone else is doing. I'm better than they are, then I'm going to be worth a higher price. That's what value is. If you go out to a restaurant and get really good service, would you go back? Yes! What if it was pricier? You'd still go back because you got better service and a better product.” - Jim Mooney

"It's good to be informed on your competition. I don't want to ignore them, but I don't want to respond too strongly to them either." - Warren Lieberman

"We did a survey of 10,000 facilities on their pricing. We found out that two-thirds of those operators didn't change the price of a single unit of the course of a month." - Warren Lieberman

“Rate increases and value pricing are the number one ways to grow your revenue.” - Jim Mooney

"Tenants in more convenient units tend to be less price sensitive." - Warren Lieberman

"The size of the unit is only one aspect of what people are willing to pay for." - Warren Lieberman

Highlights

Foundational marketing strategies to have in place - whether leasing up or stabilized:

Website
Set up listings (Yelp, Google My Business, Apple Maps)
Social Media
Establish Local Partnerships

Lease up marketing strategies:

Lead Generating Strategies (like digital ads)
Aggregators (Sparefoot, Storagefront, etc.)
Awareness Campaigns (like billboards, flyers, and sponsorships)

Your average customer value
Find the average stay length of all tenants. Next take your economic occupancy and divide by how many units you have. That will tell you what the average customer pays.

Multiply the average length of stay by what the average customer pays, and that's the average value of a customer.

For example, if a customer stays for 12 months and pays $100 per month, then their value is $1,200.

Your average lead value

Figure out your closing rate (or conversion rate) i.e. how many leads do you turn into tenants? Multiply that by your average customer lifetime value to figure out what your leads are worth.

Pro Tip: see which lead sources are converting the best. It may be that certain sources have a higher conversion rate, so those leads are worth more to you than a source that barely converts.

Typical Lease-up timeline

According to our panelists, it's typical to see a 3-4% increase each month, putting your facility at 36% after the first year, and 72% after the second.

Alternately, you can look at your lease up goals through the lens of your units, aiming for 20 units rented per month.

For Nick and StorageMax, they pro forma their economic occupancy at 85% with their sweet spot at 92%.