From attending a number of webinars, researching, and reading between the lines, here is the information I have been able to find out about our self storage industry’s performance last month (April 2020) in the “Age Of Coronavirus.”
It was a mixed bag of contradictory data.
Overview
The actions taken by the state and federal governments were designed primarily to lessen the demand for medical resources caused by the pandemic. For the most part, it appears to have worked.
Now what is needed to promote an effective economic recovery as a result of lessening the strain on the medical services is political will, something that appears to be in short supply in Washington DC.
The shape and speed of recovery, to a large degree, will be a function of how fast a vaccine is available to the general public. The best estimates I can get show at best, it will happen in the fourth quarter of 2020. Until this happens, it appears recovery will be slow.
Until then, the final 10% to 20% of the economy, the airline industry, hotels, tourism, etc., will be partial and spotty.
Office buildings, concerts, and places where large groups of humans congregate will probably be the last thing to come back. I doubt if the office sector will ever look the same.
Self Storage In April 2020
From what I can see, self storage climate-controlled street rates dropped about 6% on average in the U.S.
Non-climate street rates dropped, on average, 2.6% in April.
Now, this is a national average, which does not mean a whole lot in a given sub-market. But, it does point to a trend. Much of the immediate street rate movement is a function of the dynamic pricing strategies many of the REITs and larger institutional player employ.
The conclusion of many in the industry is that with street rates trending down, occupancy will soon follow. How much, no one is sure.
I could find no data on how “lease-up” properties did in April.
What becomes quickly evident is the top tier one markets, the large cities appear to have been hit the hardest.
The next year down, the tier two markets, the “next 40” as Yardi calls them faired better. This makes sense because, for now, we have been saying the opportunities lie in the smaller markets and the locations outside the big cities but still in their MSA’s.
I found that every market in what Yardi calls the top 30 (i.e., the larger markets) had lower street rates than a year ago except Phoenix, which was flat.
The good news for us is that new planned projects and projects moving to construction are down by 40%.
The bad news is marketing costs have gone way up as a result of the primary Google ad spend by the REITs in April.
Conclusion
Now keep in mind, this is a snapshot, not a movie of our industry in April 2020.
I think now is not the time to execute on a ground-up self storage development in most cases. However, I do think now is an excellent time to find existing, expansion and conversion deals in many markets.
There is a lot of money sitting on the sidelines. In my world, that is a great time to buy. Sir John Templeton said he made “…maximum money when there was maximum pessimism.”
The recovery will be slow, and self storage will be different in different markets. It will be a function of supply/demand market by market.
But self storage is very resilient. It holds its value better than any other asset class under pressure. Believe me, in a slow recovery, you want to be in self storage.
