“Have self storage stabilized occupancy rates gone up?”
At the Inside Self Storage Convention, I heard that question asked more than once.
The quick answer is YES.
For the first time in the history of this industry, all the REITS are above 90% stabilized occupancy.
A larger percentage of the population is using self storage.
Even though self storage is being built in record numbers, there is so much demand that most new product and existing product are being absorbed very fast.
Yes, these are the Good ol’ Days.
BUT…
(Yes, there is a big BUT that should be inserted here.)
BUT…They will go back down again.
At least that is my prediction: They are high, above 90% now, but they will drop below 90% in a couple of years.
Yes, you can quote me on that.
Here is my thinking:
For years this product stabilized out around 85%. Then the recession hit.
Very little new square footage came on line but the population kept growing at about 1% per year.
Storage Wars keep running on A & E.
Then the recession eased up, people had more disposable income, spending heated up, and more stuff started showing up in people’s homes.
People needed bigger homes, new jobs to fund all the new stuff being purchased, and yes – places to store it.
The recession created pent up demand for self storage. That’s why everyone is experiencing high occupancy rates.
And the high occupancy rates have another by-product – it has created lots of new facilities. It’s anticipated that approximately 600 facilities will be built in 2016 and as many as 900 new facilities will come on line in 2017.
I’m not panicked about this because there is still demand for this product. Remember, it takes about 500 new facilities a year just to keep up with population growth.
But all of this new product will have an effect, and I think the effect will be that stabilized occupancy rates will again drop below 90% in the next two years.
Will they go back to 85%?
Perhaps not that low, but I am guessing 88%.
My suggestion is to Proforma new product or existing facilities you are looking at using 85% to 88% stabilized occupancy for future years.
I am using 88% today in my Proformas as the stabilized occupancy rate.
And here is the good news, if the project works at 88%, it will REALLY work if I’m wrong and rates remain above 90%.
Great problem to have, but always err on the side of caution…. or at least on the side of the banks.
Most banks are still using stabilized occupancy rates in the 80’s for their underwriting process.
So there you have it, my glance into the future and prediction of what I see there.
And while I was there I also saw that self storage has a bright future and it matures as an industry and gains wide spread acceptance.
I will see you there…in the future, with lots of self storage facilities.
