Question #
What is the current state of occupancy and supply-demand balance in the self-storage market?
Answer #
Occupancy declined from the record highs reached during the pandemic.
Street rental rates came under pressure in many Sun Belt markets with heavy development.
New supply is now slowing, and demand gradually absorbs the inventory.
Most industry analysts expect the supply-demand balance to improve through 2027-2028 if demand remains steady.
During the same time period, the U.S.
population only grew by 10.3%, adding approximately 10.3 million more people.
At 8 square feet per capita, that is only 82,400,000 more square feet of demand compared to the 362,500,000 square feet delivered.
The days of paying for future value are over for buyers in the self-storage market.
With dynamic pricing, it has become hard to really peer into a market and truly see what the rents are.
For the most part, buyers are pricing off web rates (perhaps slightly higher).
There is just a lot of uncertainty, and with uncertainty, many are on the sidelines or being very safe in valuations.
As a smaller investor, I am looking for deals in high-barrier markets, where we are adding 30,000 square feet or less (due to the fact that we are not sure how long lease-up will really take).
The only exception to this is if we are developing a Boat & RV project.
But more importantly, what is needed today, in my opinion, is patient money.
We may be getting less than we used to in the first few years, but we can go after deals that still generate above 20% IRRs, but it requires time, 7 to 10 years.
Source: Why the Smaller Investor Can Win in Today’s Self-Storage Market
