Self-Storage Demand and Outlook: Q&A with StorageCafe’s Mirela Mohan
According to a recently released report by StorageCafe, rates in the sector have been decreasing nationally, though some cities (like Buffalo, NY and Tacoma, WA) are bucking the trend. According to Doug Ressler, Yardi Matrix’s business intelligence manager, 2023 should be a good year for storage, with operator sentiment generally optimistic.
Connect CRE recently asked StorageCafe Real Estate News Editor Mirela Mohan about the sector’s issues and outlook.
Connect CRE: What’s driving the post-pandemic demand for storage?
Mirela Mohan: Migration, whether it’s short-distance or long-distance, is one the main drivers of self-storage demand. This in turn both fuels housing construction and attracts local self-storage development to assist people with their space management needs. Moreover, as people have started returning to urban cores post-pandemic, they’re more likely to turn to apartment living, which typically goes hand in hand with self-storage use. Having less space available compared to those in single-family homes, apartment dwellers are more likely to use this service to make the most of their living space.
There is also seasonality, which always plays a role in how popular self-storage is as a service. The moving season starts to pick up in spring and hits high peak in the summer when people increasingly hit the road. Interest in self-storage then tends to plateau in the winter.
Connect CRE: The report mentions demand outstripping supply. Does this mean that not many storage facilities are being built?
Mirela Mohan: The national trend indicates a cooling of self-storage rates as a result of consistent deliveries over the last five years. In 2022 alone, more than 36 million rentable square feet of storage space were finalized across the US. However, not all places are created equal, and some do not benefit from the same market fundamentals. For instance, in Buffalo, NY, self-storage has not traditionally been very well developed. Currently, the local inventory counts roughly 1.8 square feet of self-storage space per person, considerably below the national benchmark of around seven square feet per capita. This indicates an undersupplied market, especially since Buffalo is now on the migration radar for both in-state and out-of-state newcomers. Street rates are on an upward path with developers planning to add 36,000 square feet of self-storage space in 2023.
Aurora, IL, presents a similar situation, with only 2.1 square feet of self-storage space per resident and over 243,000 square feet of self-storage space due to be added this year. All in all, in places where demand outstrips current supply, new construction is likely to follow to meet that demand, tempering rent growth in the process.
Connect CRE: What’s your outlook for storage in 2023?
Mirela Mohan: Self storage has been a resilient sector that experienced growth even during the pandemic. Moving into 2023, street rates seem to be experiencing a slight slowdown on the price front, partially attributed to high levels of self-storage stock, the current economic climate and seasonality. However, rates are still higher compared to the pre-pandemic period. Also, with many markets experiencing underserviced supply, construction is still at healthy levels, though decreasing compared to what has been seen during the last five years.