More than a year into the pandemic, demand for self storage continues to be strong. Despite an initial dip at the onset of the health crisis, rents bounced back in May, exceeding pre-pandemic levels. And while experts predicted a slowdown in development activity, the new-supply pipeline remained steady, underscoring robust investor appetite in the sector.
In the interview below, Mark Winmill, chief executive officer of Global Self Storage, discusses the current state of the storage sector and provides insights on what’s driving the industry’s growth.
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How has Global Self Storage’s portfolio performed so far in 2021?
Winmill: Global Self Storage’s operational and financial performance has been strong. In the first quarter of 2021, our strong pricing power and lease-up performance generated record same-store occupancy and revenues, with double-digit percentage growth in funds from operations and adjusted funds from operations.
In the first quarter of 2021, total revenues increased 9 percent year-over-year, to a record $2.4 million. Same-store occupancy increased 470 basis points to a record 96.1 percent in March 2021 from 91.4 percent in March 2020.
As a self-administered and self-managed Real Estate Investment Trust, the company now owns or manages 13 properties with 969,100 square feet of total leasable space.
Your portfolio includes properties across the Northeast, Midwest and Mid-Atlantic. What are some of the main demand drivers in these markets?
Winmill: Our key industry growth drivers are high occupancy rates, job growth and population growth. The industry-wide demand remains high at average occupancy rates still above 92 percent in 2020, according to the 2021 Self Storage Almanac. The occupancy rate remains high despite the increased supply of net rentable space now totaling about 58 million square feet industry-wide.
Self storage demand is strong and shifting to lower-cost cities, as population and migration growth increase in secondary markets, as Marcus & Millichap researchers also noted.
We continue to see tremendous expansion opportunities with strong demographic and market fundamentals in secondary and tertiary markets in the Northeast, Mid-Atlantic, Midwest and South-Central regions of the U.S. These markets are positioned near metropolitan areas with high barriers to entry, such as zoning regulations. These are metropolitan areas outside the top 25 metropolitan statistical areas that have experienced more muted and slower supply growth.
Secondary and tertiary markets may also present above-average growth in rents due to the favorable supply and demand dynamics.
What are some new trends that have emerged during 2021?
Winmill: The pandemic highlighted the need for companies to adopt technology and innovate to maintain operations and customer engagement, regardless of their industry. For self storage providers, making the customer experience of renting storage easier and more efficient is key, and operators have increasingly turned digital for marketing and operations.
Global Self Storage has long provided online leasing and payment options, as well as on‐site contactless solutions using 24/7 self-service kiosks that can facilitate rentals and even automatically dispense locks, so we’ve relied on these methods to maintain seamless operations.
There is also an increasing differentiation in operational management expertise between the larger, more sophisticated operators and the rest of the field of single-property and small portfolio owners/managers. The company’s third-party self storage management platform, Global MaxManagement, is designed to increase the value of independent property owner self storage businesses.
The platform delivers strategies that address the challenges that come with staffing, budgeting, billing, collections, auctions, rental rate adjustments, online marketing and maintenance.
Thanks to the sector’s resilient nature, self storage attracted several new players in 2020. How do you expect this trend to impact market dynamics in the long term?
Winmill: The self storage industry has indeed been resilient through many times of economic weakness. Self storage space seems to always be in demand as new demand drivers evolve over time. Adverse events such as the COVID-19 pandemic and the Great Recession were disruptive to many businesses; however, as evidenced by our strengthening performance in the second half of 2020 and into 2021, our industry continues to demonstrate its resiliency.
As for new players, the self storage industry is highly fragmented. In fact, according to the 2021 Self-Storage Almanac, only about 20 percent of the market is controlled by the top six publicly traded self storage companies. And interestingly, 71 percent of self storage properties are currently managed by independent (mom-and-pop) operators. This highly fragmented market presents opportunities for both Global Self Storage and our REIT peers to make strategic acquisitions.
What type of self storage facilities are in the highest demand now?
Winmill: Across the main types of traditional indoor storage, climate-controlled storage, and outdoor storage for boats/cars/RVs, there has been strong demand. Our recent strong lease-up performance at our newly expanded facilities was in part driven by the pent-up demand for climate-controlled storage.
To meet this demand, we completed two expansions and a conversion project in 2020 that added a total of more than 32,800 leasable square feet of climate-controlled and drive-up self-storage units.
Successful lease-up campaigns then drove our total average non-same-store occupancy from 71.5 percent at the end of the first quarter in 2020 to 88.8 percent at the end of the first quarter this year. Given the success of these projects, we are currently evaluating other potential expansion projects throughout our portfolio.
Experts predict a slowdown in development activity in the near future. What’s your take on this matter?
Winmill: There are now nearly 50,000 self storage facilities in the U.S. That is 3,000 more than in 2019. This has increased the supply of net rentable square feet in the U.S. to about 58 million. While supply has increased, demand remains high industry-wide. Since 2010, average occupancy rates have climbed steadily from 75.7 percent to 92.2 percent in 2020.
We expect development activity to remain consistent as demand patterns increase and that there will be an increased consolidation. Any general development slowdown would be good for us, of course, as this means less competition. And we are certainly not planning to slow down our redevelopment activities.
Do you expect the sector’s resiliency to persist beyond the pandemic?
Winmill: Definitely, as it always has after changing economic periods over the decades. So, we see the current steady growth trajectory to continue over the coming years, and the research shows it. IBISWorld expects the U.S. self storage market to grow at a 2.2 percent compound annual growth rate to $44.5 billion by 2024. So, we remain very optimistic about our industry and the future of Global Self Storage.