The self storage industry is in uncharted territory as an industry. It will be very interesting to see how things turn out for us.

We continue to be one of the shining stars in investment real estate, but nothing guarantees things will continue to be the case.

As a business owner, I have to take a stand like this so we don’t take the mentality we all developed from the last recession and use it for today’s challenges.

It’s a different world with different internal and external forces at play.

Internal Market Forces At Play

In short, there is one term for the main internal market force affecting our industry:

Over-Supply.

I could have said stupidity, but that would have been too strong.

I wrote articles and episodes in 2016 talking about the potential for an oversupplied market, and the fact that in today’s world (the world at that time), we now had all the data and information as an industry we needed not to build in a sub-market in equilibrium or over-supplied.

I stole a phrase I heard from Jernigan Capital called “soft-landing.”

As my wife often says, I was naive enough to think we could have a “soft landing” in our industry with all the data at our fingertips.

But the square footage continues to hit the market.

I am guilty of it myself. Most of what we bring on is smaller in the form of expansions (and a few conversions), but we attempt to validate demand before bringing on new self storage.

So, a big difference in today’s reality and the industry’s backdrop in the last economic challenging times is that many markets, and more importantly, many sub-markets, are oversupplied.

But that is not the only internal factor at play, creating a different industry.

We are also a much more mature industry.

If you think of our industry in terms of the life cycle of a human, in 2008 through 2011, as an industry in the US, we were not toddlers, but at most, we were young adolescences.

Today we are perhaps young adults.

Lots of wall street and institutional money has flowed into the sector since 2008 due to how well self storage performed in the last recession.

This not only keeps prices high and helps keep CAP rates low, but it has also had an impact on innovation and operations.

Smaller operators have to up their management game and compete online effectively. As an industry, the majority of the facilities are still owned and operated as a mom and pop business. But that is changing fast.

With new innovation being adopted by the institutional operators and effective online marketing, the smaller operators need to learn, change, and grow to stay relevant. It is doable, and we can outperform them, but it takes the willingness to change.

I think these internal market forces at play paint a much different backdrop for our current times than the last recession.

 

External Market Forces At Play

No big mystery here. COVID-19 is something we haven’t had to deal with since 1917-1919. Look familiar?

Even back then, some ignored this rule of wearing a mask and keeping a distance.

We have had stay-in-place orders enforced and then lifted. Then in some areas, put back in place. Some states we can’t go to without a quarantine. I have a facility I really want to go see, but given where it is, I would have to stay home and not go out for two weeks when I get back. Believe me; my wife would ensure that happens.

So, we are also dealing with a pandemic and all the emotional and economic challenges that go with it. This is definitely a dimension we did not have to deal with in the last recession. Using the last recession’s mindsets and strategies, in my opinion, is a formula for failure.

Yes, self storage is going to do better than all. Or most other real estate sectors, but that guarantees very little when it comes to operating your facilities in the upcoming year or so.

So, what should we focus on?

Here is where I am taking our company as we grow into the next year or two. We are focused on five key areas of our operation to ensure success in the ongoing and upcoming challenging times.

1. Effective & cost-efficient on-line marketing.
2. Effective & cost-efficient automation.
3. Effective & cost-efficient revenue management strategies.
4. Enhanced customer experience.
5. Effective & cost-efficient operating expense management.

So, this is what the next upcoming episodes are about. I will take you through the journey we are currently going through today as we take on these challenging times we find ourselves in.

I’ll see you on the other side.