Headlines:
“Self-Storage Rates Fall Across US.”
“New Supply Surges As Rental Rates Fall.”
“Self-Storage Slows Down.”
“Is it true?”
“Well …that depends.”
“On what?”
“Where you are!”
“I live in the southeast.”
“Where In the southeast?”
“In Georgia.”
“Where in Georgia?”
“Atlanta.”
“Where in Atlanta?”
You see, writers use headlines to have you read the first sentence. The first sentence is designed to have you read the second, and so on.
If you take all of the submarkets in the U.S. and average them, perhaps there is a “national decline”, although I have not seen that calculation.
Perhaps, some cities or states can have some declining rent average that has some meaning or at least point to a trend.
But the reality is, self-storage is a sub-market phenomenon.
Oversupply happens one submarket at a time.
If you are in an oversupplied submarket, your rental rates are going down.
Submarket at equilibrium? Your rental rates are flat.
Also, if your submarket is undersupplied, your rental rates are most likely going up.
According to Yardi, Dallas/ Fort Worth rents are down 6.6%.
I just saw a heavily populated sub-market (over 100,000 in a 3 to 5-mile radius) where there was 2.6 sq. ft. of self-storage per capita in the Ft. Worth MSA.
Do you think an expansion or phased in a new facility there would do well?
In Las Vegas, rates are up 6.3% for 10 x 10’s.
I have seen sub-markets in the Vegas area that are 12 sq. ft. per capita.
Do you want to build a new facility in that submarket?
Yes, there is more self-storage product is online now.
Yes, I am feeling it in some submarkets I’m in.
But don’t get bullied by the headlines.
Stay the course.
Study each opportunity and get what you need to get in order to know the supply/demand and health of a sub-market.
Self-Storage Market Changes
After the great recession, there was a lot of pent-up demand.
There had been very little construction; people were back to work, moving, renting, buying homes, and as owners of self-storage, we experienced very high occupancy rates. Some years we even had double-digit rental growth.
Also, because self-storage did so well, Wall Street started chasing the benefits self-storage offers investors and, well, you know what happens to self-storage values.
Now, as so much supply comes into the market submarket-by-submarket, the self-storage industry appears to be heading towards oversupply.
Or, is it just getting back to equilibrium?
That just depends on where you are looking.
Just remember, there are two factors which will impact self-storage absorption:
- Population growth in a sub-market.
- A larger percentage of the population using self-storage.
Population growth is a very easy metric to track. Most data analytics programs offer projected population growth and you can track it easily, or just google it.
The second factor impacting absorption is also in our favor; the industry is becoming a more accepted solution in our society, and most drivers for demand in self-storage are trending in the right way.
- Baby-Boomers passing down the accumulated stuff.
- A consumer economy (consumer consumption of furniture and household goods were up 3.5% from Aug. 2017 tru Aug. 2018)
- Housing and multi-family trends.
- Employment.
Yes, for the next few years there will be pressure on rental rates. From what I can see, the vast majority of the new self-storage is on the market or under construction.
It most markets, that will absorb up. Yes, it may slow down rental growth. Yes, it may slow down your lease up if a new one opens in your submarket and you are still leasing up. In time, the new space will rent up.
As you are considering submarkets to expand in or build in, just be clear that someone will not beat you to the market with new space.
So for now, rental rates may only be going up slowly for the next few years. But unless there is a major bump in the economy (which could very well happen), I see a very healthy future for self-storage as an industry.
The use of sophisticated revenue management techniques will be critical over the next few years to achieve maximum value. Don’t be afraid to try new things and grow with the industry.
(Review the value Add Pricing method episode). { link to Episode 154 – 3/16/2018}
So be smart, be bold, and continue finding the submarkets that need the benefits and products that self-storage offers. If you do that, you’ll be creating true wealth in the best business there is.
