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Self Storage Status
By Leah Etling on Aug 29, 2024 in Matrix
As we move through 2024, the self storage market is navigating a complex landscape shaped by a mix of persistent challenges and emerging opportunities. Yardi Matrix experts Jeff Adler and Tyson Huebner recently delivered an update on the industry’s current state in a webinar (available for download here), drawing on recent data and trends to offer a clearer picture of what’s happening in the self storage sector.
The self storage market has faced significant headwinds over the past year. Despite the typically bustling summer season, performance has remained underwhelming. Home sales—a key driver of occupancy and rent growth during the pandemic—are at their lowest in nearly two decades.
This downturn has translated into declining revenue and net operating income (NOI) growth for self storage Real Estate Investment Trusts (REITs).
“Advertised asking rent rates have been falling year over year for almost two years, with a decline of 4.1 percent recorded in July. Although this represents a slight improvement from previous months, the overall trend remains negative,” said Huebner, research director for Yardi Matrix.
On the supply side, there is some positive news. The delivery of new units is finally trending downward, with 2024’s expected deliveries being nearly 10% lower than those in 2023. This reduction in new supply should alleviate some pressure on the market and help stabilize conditions.
“Looking ahead to 2025, the reduction in new supply could help support growth, and there is optimism that a potential drop in mortgage rates might boost home sales and, by extension, demand for self storage,” Huebner said.
There are emerging signs that the market may be nearing a turning point. For the first time in nine quarters, average rent and occupancy rates have shown relative stability year over year. This stabilization, which began in Midwestern, Northeastern, and West Coast markets, is now spreading to some Sunbelt areas that had been struggling with new supply absorption. Notably, advertised rent declines, particularly those from REIT-managed facilities, saw a slight improvement in July.
The second half of 2024 may present a more favorable comparison to the same months in 2023, as rents dropped sharply during the latter half of last year. Looking ahead to 2025, the reduction in new supply could help support growth, and there is optimism that a potential drop in mortgage rates might boost home sales and, by extension, demand for self storage.
Overall, the self storage sector remains resilient. Store revenues have increased by 37 percent and NOI by 45 percent since the pandemic’s onset. This robustness can be attributed to the effectiveness of ECRI (Enhanced Customer Revenue Initiatives) programs, which have helped offset lower asking rates and occupancy levels.
Market performance has varied geographically, with previously strong Sunbelt markets now underperforming, while areas that lagged in 2021 and 2022 have recently shown improvement. This variation underscores the temporary effects of new supply surges and highlights the importance of geographical diversification in investment strategies.
Cities like Denver, Portland, Seattle, and Washington, DC, have navigated the supply surge from 2017 to 2019 and now offer a hopeful outlook for markets such as Las Vegas, Phoenix, and parts of Florida as they work through their supply pipelines.
For investors, the recent trends in the self storage market underscore the importance of a diversified portfolio that can adapt to local supply and demand dynamics. As the investment landscape evolves, opportunities are likely to arise from properties that were originally valued at peak occupancy and rent levels.
The self storage sector’s ability to weather the storm and adapt to changing conditions suggests that, while challenges remain, there are still promising avenues for growth and investment in the years ahead. Gain more insight from the latest Yardi Matrix self storage market report.
