While the last nearly two years have been enormously disruptive for so many industries and businesses, self storage has experienced extraordinary growth. While industry numbers slumped in the first half of 2020 in the early months of the pandemic, the upward trajectory since has been record-setting. Occupancy and rental rates are both at all-time highs.
Given this rapid growth, it is reasonable to take a closer look at how sustainable these trends are, which have shaped the evolution of the industry, and what self storage professionals and investors have to look forward to in 2022 and beyond. What follows is a review of some of the broad structural trends in the industry, and a look at what the New Year might have in store for the self storage sector.
Skyrocketing occupancy and rental rates have driven growth over the past 12 to 18 months. This pattern, which has persisted across multiple markets, started to become noticeable in Q2 2020, and took off in earnest in Q3. A lot of digital and literal ink has been spilled pontificating about the underlying reasons behind that surge, from residential and commercial clients looking for additional space rather than making big real estate decisions in a time of uncertainty, to a population of remote workers looking to organize and clear out their home offices.
The larger macro-economic and inflationary cycle has obviously also played a role. The reality is that there is no single answer: the growth has continued for various reasons. We can confidently say that the growth trend has persisted, with quick lease-ups on new projects. With the worst days of the pandemic hopefully in the rearview mirror, self storage tenants have had the time and perspective to get a better sense of their space and needs, and most temporary renters have likely cycled out. That gives reason for optimism that the overall trend of positive growth will likely continue at least into the heart of 2022.
As industry professionals will readily admit, self storage has traditionally been somewhat behind the curve when it comes to adopting and embracing new technologies. Given that history, it comes as a welcome surprise that one of the factors contributing to the growth and evolution of the industry recently is significant new investment in tech solutions and infrastructure. The level of investment in new tech and convenient new platforms and systems has been a big part of the self storage story over the last 18 to 24 months.
Fueled at least in part by the consumer preference for touchless rentals and the ability to rent and access space without human interaction, a range of solutions that includes self-serve kiosks, call centers, websites and apps have emerged to meet those needs (along with innovative and effective digital access and security solutions). Some of the larger industry REITs have recognized the value of new technology, and a handful of prominent third-party service providers have stepped up to offer proven solutions. The bigger picture is that owners, operators, and investors have recognized that technology is not a gimmick; it is a differentiating value-add that can deliver a big step forward in convenience and service, and ultimately can provide a meaningful boost to the bottom-line performance of self storage assets.
Given the advancements in technology and automation, as well as the concurrent and ongoing increases in labor costs, the self storage industry is finding ways to operate leaner and with fewer on-site personnel. In light of a robust labor market and wages inflating the fastest in decades, it is reasonable to expect this trend to continue, especially as owners and investors place a heightened focus on reducing operating expenses and boosting net operating income. The good news is that these cost pressures are prompting many self storage owners and operators to become more efficient and spurring additional investment in the convenient and popular technologies and self-service platforms that renters are looking for in growing numbers.
Third-party management solutions continue to grow more popular in the self storage space, with more owners recognizing the value of a third-party management partner. While every third-party partnership should be the result of a thoughtful review and evaluation process, the right third-party manager can add a great deal of value to a self storage facility. Third-party management professionals often have more resources and experience and can leverage those resources and expertise to introduce new efficiencies, technologies and services—ultimately yielding a more profitable bottom line.
Self storage has proven to be recession-resistant yet again, avoiding some of the biggest hits that retail, hotel, student housing, and some multifamily investments got hammered with during the depths of 2020. The surging performance of this asset class, coming on the heels of more than three decades of steady growth, has drummed up considerable investment interest from both private and public markets. This positive performance and increased investment interest has also led to more aggregation as a handful of big names acquire smaller independent owners and operators in the industry.
Looking forward, the ready availability of capital and almost industry-wide increases in occupancy and rental rate growth will continue to fuel the investment and growth of the sector. The result is an industry buoyed by strong performance, invigorated by additional investment, and the integration of sophisticated new technologies, positioning it for additional growth for the foreseeable future. Occupying a specialized niche in one of the hottest commercial real estate segments, self storage seems poised to continue to thrive.
Rob Consalvo, Store Space’s president & COO, is an experienced executive with nearly 20 years of operational expertise and infrastructure development, managing multi-state self storage portfolios. Prior to founding Store Space in 2017, Consalvo was the president & CTO for Storage Rentals of America and before that he was a key stakeholder in iStorage before its $700 million sale to National Storage Affiliates.