Why Self Storage’s Slowing Rent Growth Is Not a Concern
Positive demographic and housing trends will continue to sustain the sector's growth, according to Absolute Storage Management CEO Scott Beatty.
Thanks to its counter-cyclical nature, the self storage industry became a strong performer throughout the health crisis, with steady rent growth and development activity across the country. Although the pandemic-induced demand began to soften in recent months—with conventional seasonality returning—rent growth remained high by historical standards.
To find out more about the sector’s performance over the past few months, Multi-Housing News reached out to Scott Beatty, CEO of Absolute Storage Management. With a management portfolio of 128 properties throughout the South and Midwest, the firm recorded a 94.4 percent occupancy rate across its facilities at the end of September, significantly above the 89.5 percent registered over the same period in 2020. Below, Beatty talks about what fuels demand and shares his views on the industry going forward.
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What were the main challenges in the storage sector this year?
Beatty: One of the biggest challenges we faced through the first half of 2021 was finding and attracting talented team members as we brought on new locations, restaffed at locations that had reduced hours through the height of COVID-19 in 2020, or responded to resignations within our existing team. Thankfully, most of the challenges on this front eased during the third and fourth quarters of this year as COVID-19 infection rates have declined, and the workforce has returned in great numbers.
Where have you seen the most demand?
Beatty: We have seen significant growth in nearly all our states and regions. This is mostly due to the increased demand that the industry has experienced over the past couple of years. Our occupancy percentages are up nearly 6 percent over pre-COVID-19 periods, and remain at elevated levels even through the fall and early winter.
Our tenants continue to need our services as home sales remain robust in our markets. We’ve seen an uptick in corporate and business rentals through this year as companies respond to supply chain issues and begin to accumulate more products to meet demand. In addition, service industries like home builders, plumbers and others have never been busier as homeowners look to make improvements, and these businesses are reaching out to our facilities for their storage needs.
Major markets such as Nashville, Tenn., Atlanta and Charlotte, N.C., continue to grow at exciting rates, as have the smaller, secondary markets that we operate in.
On a national level, self storage rent growth is beginning to slow down. Should this be a reason of concern?
Beatty: Currently, we don’t view this as a concern, as some of this is simply due to the traditional effects of seasonality. In most years, spring and summer are the strongest months for self storage, with fall and winter being slower. COVID-19 threw the conventional seasonality out the window in most of 2020 and the first half of 2021. However, as students returned to schools and campuses, the consumer or tenant behavior began to normalize as well.
The basic laws of supply and demand are impacting our asking rents, which in turn is beginning to slow down the rent growth.
In addition to this, there are new development properties coming on board, properties that were started some 12 and 18 months ago, so the increased supply will naturally have an impact on its surrounding micro market.
How have your management strategies changed since the onset of the health crisis?
Beatty: Since the outbreak of COVID-19, we have made additional strides in utilizing technology in all facets of our operations. We were very fortunate that we had launched our online rental platform before the health crisis, so we were able to focus a great deal of our time and attention on other operating functions at the property.
The pandemic has greatly impacted our staffing resources and we quickly pivoted to using technology to help with basic functions like collections, auctions, security and property maintenance. We pivoted to finding ways to serve our customer from a distance through on-site contactless rental processes and provided additional self-service functionality to their customer experience.
We put a great deal of focus on communication. From a third-party management company perspective, we shifted our strategies around client communications, most of which were done in-person prior to COVID-19. We rolled out a new owner update platform and made sure that we communicated effectively as things progressed with the crisis and as we experienced various staffing and other operational challenges.
We also put a great deal of focus on our internal team communications as we quickly recognized the need to find ways to keep our culture alive and well, to keep our team connected and to help the team during these trying times. We instituted various programs such as Watch a Wednesday, Fun Friday and Coffee & Chat events that continue to this day.
What are the main characteristics a self storage facility shouldn’t lack in 2022?
Beatty: Safety and security remain near the top of every customer’s needs and expectations list, and these should not be overlooked when developing a new property. Developers should look to include the latest technologies, including bluetooth gate entry systems and individual door locks. Not only do these provide an enhanced level of security, but they also provide a great deal of convenience for the customer. Robust security systems should be in place with the option for remote monitoring, and the lighting on the property should also not be overlooked.
What does it take for a self storage provider to stay ahead of the competition in 2022?
Beatty: In my opinion, focusing on the customer and providing the highest level of service possible is always going to be a key to success. That doesn’t necessarily mean that we can’t utilize technology to its fullest and that we need to return to a pre-COVID-19 model, but it does mean that the customer should be at the heart of each process, each system and each interaction. If a storage provider is focused on the customer, then they can often overcome a few of the more tangible components of storage that may make it challenging to compete—such as location, age of the property and other physical characteristics.
How do you expect market fundamentals to evolve in the upcoming months?
Beatty: The growth in jobs, reduction in unemployment, continued strength in housing and increases in wages will all continue to be positive signs for the storage industry. It’s difficult to predict how the latest COVID-19 variant will impact our patterns, but at this time the outlook for the coming year looks very promising.