It’s odd that I ever get the “last word,” especially at my house, so I guess it is apropos that someone who’s been in the storage business for over 46 years finally has something to say about the current state of affairs in the self-storage sector.
I’ve been asked to speak on development, the current cuss word du jour in our industry. I have lived through multiple ups and downs in the self-storage market, most of which have been brought about as a result of too much supply and not enough demand, at least for a while.
Those who have been in this wonderful business for the past few years have to understand it’s not always this fantastic. We have just been through the best of all possible times in the history of this industry, and I truly think this has been a once in a lifetime event. 100,000-square-foot stores do not fill up in 12 months; if you are not modeling three to five years, get ready for some severe pain and suffering around the corner when you see rent-ups in the 2 percent range per month.
We are not special nor recession proof, and sometimes I even wonder if we are recession resistant. We have been fortunate to have had incredible success during the past three years that, if you are paying attention, will not happen again. Hopefully you have saved a little for a rainy day, because the clouds are forming.
We are tied to many things, but most of all, transitions. Whether people are transitioning up or down in life, this creates one of the biggest sources of demand. When those transitions slow down or cease, the demand for self storage goes down with multifamily lease renewals; if people are not moving from apartment to apartment, they keep their stuff with them rather than storing them. We are, likewise, hand in glove tied to the number of home sales. If people cannot buy homes, they do not move; if they do not move, the demand for storage stagnates. This is shown very clearly where the Google Search demand for self-storage has gone down almost 20 percent below where it was in 2019, pre-COVID!
Yes, it will be a very tough couple of years until we see interest rates settle; I don’t really care where they settle, so long as they settle. You forget that a scant seven years ago, 30-year mortgages were 6 percent and our sector was doing great. It will take some time for this to happen. I see a very tough 2024, the sun coming from behind the clouds in Q1 or Q2 2025, and things relatively back to “normal” in 2026.
So my last word is, I am still on the right side of the grass and know one thing: When man plans, God laughs, and he is chuckling right now. Be flexible with your plans. If you must develop, remember: I have never seen a self-storage facility fail if from the front door you can smell McDonald’s and see a Walmart.
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