Self-storage continues to soar in 2022
While the past two years have been extremely disruptive for so many industries and businesses, self-storage has seen tremendous growth. While industry numbers plummeted in the first half of 2020 in the early months of the pandemic, the upward trajectory since has broken records. Both occupancy and rental rates are at record highs.
Given this rapid growth, it is reasonable to take a closer look at the sustainability of these trends, which have shaped the evolution of the industry, and what self storage professionals and investors should expect in 2022 and beyond. What follows is a review of some of the major structural trends in the industry and a preview of what the new year may hold for the self storage industry.
Soaring occupancy and rental rates have driven growth over the past 12 to 18 months. This trend, which persisted in several markets, began to be felt in the second quarter of 2020 and took off in the third quarter. Much digital and literal ink has been spilled pontificating on the underlying reasons for this increase, from residential and commercial customers seeking additional space rather than making big real estate decisions in uncertain times, to a population of remote workers looking to organize and empty their home offices.
The broader macroeconomic and inflationary cycle obviously also played a role. The reality is that there is no single answer: growth has continued for a variety of reasons. We can confidently say that the growth trend has continued, with rapid rentals 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 tenants have probably cycled. This gives reason to be optimistic that the overall positive growth trend is likely to continue at least into the heart of 2022.
As industry professionals will readily admit, self-storage has traditionally been somewhat behind when it comes to adopting and embracing new technologies. Given this history, it is pleasing to see that one of the factors that has recently contributed to the growth and evolution of the industry is significant new investments in technology solutions and infrastructure. The level of investment in new technologies and convenient new platforms and systems has played a significant role in the history of self-storage over the past 18-24 months.
Fueled at least in part by consumer preference for contactless rentals and the ability to rent and access space without human interaction, a range of solutions including self-service kiosks, call centers, websites and applications has emerged to meet these needs (as well as innovative and efficient digital access and security solutions). Some of the industry’s largest REITs have recognized the value of new technologies, and a handful of leading third-party service providers have stepped up to offer proven solutions. The big picture is that owners, operators and investors have recognized that technology is not a gimmick; it’s a differentiating value that can deliver a big leap forward in convenience and service, and ultimately can give a significant boost to the performance of self-service storage assets.
With advances in technology and automation, along with concurrent and continuing increases in labor costs, the self-storage industry is finding ways to operate more efficiently and with fewer staff. on the spot. In light of a robust job market and wages that are inflating the fastest in decades, it’s reasonable to expect this trend to continue, especially as owners and investors pay attention increased to lower operating expenses and higher net operating income. The good news is that these cost pressures are prompting many self-storage owners and operators to become more efficient and invest more in convenient and popular technologies and self-service platforms that tenants are increasingly looking for. .
Third-party management solutions continue to grow in popularity in the self-service 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 lot of value to a self-storage facility. Third-party management professionals often have more resources and experience and can leverage those resources and their expertise to introduce new efficiencies, technologies, and services, ultimately resulting in a more profitable bottom line .
Self-storage has once again proven to be recession-proof, avoiding some of the biggest hits as retail, hotel, student housing and some multi-family investments have been hammered into the depths of 2020. The rising performance of this asset class, coming on after more than three decades of steady growth, has generated considerable interest in private and public market investments. This positive performance and increased investment interest has also led to greater aggregation as a handful of big names acquire smaller independent owners and operators in the industry.
Going forward, the ready availability of capital and near-industry-wide increases in occupancy and rental rate growth will continue to fuel investment and growth in the sector. The result is an industry underpinned by strong performance, invigorated by additional investment and the integration of sophisticated new technologies, positioning it for further growth for the foreseeable future. Occupying a specialized niche in one of the hottest segments of commercial real estate, self-storage looks set to continue to thrive.
Rob Consalvo, President and COO of Store Space, is a seasoned executive with nearly 20 years of operational and infrastructure development expertise, managing multi-state self-storage portfolios. Prior to founding Store Space in 2017, Consalvo was President and CTO of Storage Rentals of America and before that he was a key player in iStorage before its $700 million sale to National Storage Affiliates.