Self Storage Rebounds and Remains Strong Post Pandemic

When the pandemic hit, there were questions about the future of the self storage industry. Instead of the expected decline, self storage saw higher than average growth. Occupancy rates and rents are currently seeing record highs as well as investor interest. To find out more about why self storage remains strong in a post-pandemic world, keep reading.

The self storage industry typically sees demand when people’s lives change for ordinary reasons like relocation, marriage, and divorce. During the past eighteen months, however, the global health crisis has produced more disruption and upheaval to our way of life than has been seen since World War II.

Self storage has become a go-to solution for people that need more space as well as a profitable investment opportunity for those looking for an alternative asset class with low operating costs and a stable cash flow. If you’ve been on the fence about investing in self storage, now is the time to contact Pinnacle Storage Properties, one of the fastest-growing storage companies in the USA. They have a proven track record of self storage acquisition, development, and management success.

Self Storage Remains Strong

According to Roger Morales, Head of Commercial Real Estate Acquisitions Americas at KKR, the self storage industry averaged 3.5% annual growth for more than 30 years. After a slight drop in growth in the first half of 2020, self storage has roared back. Occupancy rates and rents are at record highs. 

With the advent of the pandemic, there were questions about the future of self storage. Tyler Henritze, head of the investment firm, Blackstone, states, “I think the market has been caught off guard and surprised at how strong the fundamentals are.” Self storage has a strong foundation in residential customers who are accustomed to using self storage as their extra attic or basement. Commercial customers, as well, routinely lease space for extra inventory, supplies, and equipment rather than expanding their offices.

Americans are allocating space for home offices and homeschooling. Urban dwellers have been leaving their apartments to ride out the pandemic in their parents’ homes. Restaurants and small businesses that had been forced to close also need extra space for inventory. Having storage for their belongings gives them time to explore their options and rethink their next move. 

Investor Interest

The unforeseen need for storage space across the U.S. resulted in some of the public REITs reaching the highest occupancy seen in self storage public REIT era. Yardi Matrix data revealed that, as of October 2020, the year-over-year street rate for both climate- and non-climate units has had positive performance. This is the first time since 2017 that this has occurred. 

The self storage sector’s recession-resistant nature became evident during the second half of 2020, leading to a surge in investor interest. Yardi Matrix disclosed that last year investors looking to diversify their portfolios closed on a total of $3.6 billion in self storage deals across the country. 

Growth is mainly driven by traditional storage units, but storage of recreational vehicles and boats has increased as well. The nationwide escalation of home prices has buyers opting for small spaces. This all translates into a steady demand for self storage. 

Across the country storage facilities have experienced the biggest returns to investors in public real estate stocks this year. Mid-year total returns from self storage real estate investment trusts climbed to 36%, outpaced only by malls and shopping centers.

Technology

During the pandemic, operators adjusted their services to offer customers more choices with reservations and move-ins. Online rental agreements and kiosks gave customers the option to limit contact with other people. With online rental platforms, what used to be a 45-minute transaction now takes as little as three minutes.

Post Pandemic

Self storage has benefitted from the changes we’ve seen during the pandemic, but what does the future hold once the country returns to normal and the economy recovers? 

Eventually, the economy and normal life will be restored. Nevertheless, self storage demand is likely to continue due to the fact that many temporary changes are likely to become permanent. Two of these changes that will be continuing for some, working from home and homeschooling, will contribute to the demand for extra space. 

During the pandemic, American’s were in high consumer mode, with spending growing 9 percent in 2020, reported Deloitte. Spending from March to November 2020 was up by $60 billion compared to the same period in the previous year. This indicates an increased need for self storage.

Decreased development will also contribute to self storage momentum and rent increases. Mike Mele of Cushman and Wakefield notes “While development activity is only down by 15 to 20 percent this year, by 2023 it should be down 40 percent or more.”

Final Thoughts

Self storage remains strong because the industry is especially suited to life transitions. People will always need space for their overflow, especially during periods of adjustment. Marriage, divorce, babies, relocation, and even an uncommon global health crisis can trigger the need for self storage. Continued reliance on self storage keeps the industry thriving and gives people extra space solutions when they need them most.