Self storage performed better than most commercial real estate sectors during the last recession in 2008; and certainly better than residential real estate. As a result, the self storage industry garnered the attention of investors worldwide. Over the last 15 years, this sector has experienced exponential growth and an influx of cash flow.
However, these same investors and operators are now experiencing a challenging rental market, for the first time in self storage. As the story goes, residential sales are down 60%, interest rates and home values are inflated, there’s a reduced renter volume, newly built properties are leasing up, and the country is now entering an election cycle year. Let’s just call it what it is, the perfect storm!
The numerous issues facing operators today can be daunting. As we enter 2024, there’s no better time to evaluate your business plan than now. How are you going to capture new rentals? Where should your precious marketing dollars be invested? Can expenses be reduced? What type of discounting should be considered, and how should you address revenue management?
Lucky for you, we’ve consulted with some of the country’s top portfolio operators to get the inside scoop! They represent more than $1 Billion in self storage assets, both under management and in excess of 200 properties. Below they share their honest insight on some of the most asked questions from owners and operators alike.
Question 1. Interest rates have risen dramatically over the last 18 months. Home sales are down 60%! Housing prices are inflated due to limited inventory. As a result, people are staying in their homes longer. How is this affecting rental activity across your management portfolio?
“Over our portfolio we are seeing a 10-20% decrease in rental activity. However, while this is a concerning number, another factor is also at play. Unprecedented low rates of the big REIT’s have been implemented in many markets. Now we have lower rentals and lower rates. This isn’t a positive time in the current storage cycle.” Magen Smith & Rick Beal, Atomic Storage Group
“Rental activity is down across all our markets. However, some markets have been affected more than others. For example, South Florida hasn’t been affected as much as other areas like Michigan, Texas & Pennsylvania. Year over year, move-in’s are down and physical occupancy is down between 3% to 7%.” Steve Hryszko, Amsdell Companies
Question 2. Due to the reduction in renters, what are some of the tactics you’re using to capture the reduced rental opportunities in the market?
“Sharpen the saw! Now more than ever you need to make sure every single “I” is dotted and “T” is crossed. Competition is fierce so make sure you are pushing reviews, social media, and your PPC is on point. You have to invest the time if you want to see the results.” Magen Smith & Rick Beal, Atomic Storage Group
“We have been slightly more aggressive at offering rent concessions; we have also increased our marketing spend including investing in and out of industry digital marketing firms to dive deeper into our SEO in select markets.” Frank Certo, The Storage Mall
Question 3. Post COVID renters who utilized storage in 2021 at inflated rates are now moving out, and new renters are moving in – at reduced rates. How will this affect your budgeting forecasts in 2024? Are you anticipating reduced Gross Revenue vs 2022 & 2023?
“Budget projections for 2024 will definitely be more conservative. As our revenue management program continues and stores mature in their markets much of the discounted rates, etc have been addressed so we anticipate average 3 – 5% increases in most stores as opposed to 7 – 9%” Frank Certo, The Storage Mall
“We saw a decrease in income in the first half of 2023 vs. 2022, but cut expenses and were able to maintain, and actually increase our net.” Vince Fantozzi, East Penn Self Storage
Question 4. Over the last five years self storage development has been robust. This has caused new inventory to enter the market. How are you navigating operations in markets with properties with lots of competition?
“It’s no secret that REITS are “tanking” markets. This excessive reduction in rates are even more considerable in lease up stores. If you are competing against that, offer flexible pricing models, such as discounts for longer-term rentals or promotions for new customers to attract a broader range of renters. Implement targeted marketing campaigns and promotions to highlight the value of storage solutions during economic uncertainties can help maintain or increase rental activity. Finally, implementing cost-effective measures without compromising service quality can help maintain profitability.” Magen Smith & Rick Beal, Atomic Storage Group
“We are trying not to match rates and instead moving to offer rent concessions where necessary. Most of our markets are tertiary and feature little new growth. Of the markets we are competing in, they are very transient and transactional markets so we hope to hold on and stay the course.” Frank Certo, The Storage Mall
Question 5. What recommendations do you have for an owner navigating operations in 2024?
“In an increasingly competitive market updating overall on-line and all marketing is very important. Looking to hire sales oriented people going forward, office hours are not increasing but marketing costs have increased and a focus on marketing is that much more important. Getting and having the best data on competition and knowing rates and trends of the competition is extremely important with the ability to modify our approach quickly is a must.” Steve Hryzko, Amsdell Companies
“First don’t panic, you know the basics, but do them better. Starting by building strong ties with the local community through events, partnerships, or sponsorships can enhance brand visibility and customer loyalty. Updating your website and incorporating user-friendly features can enhance the customer experience, facilitating easier navigation and information access. Invest in the right SEO. You can’t invest a quarter and expect ten dollars. Quality does cost money and it does make a huge difference. It’s hard, but you need to maintain an active online presence to increase visibility and attract customers.” Magen Smith & Rick Beal, Atomic Storage Group
As mentioned, the self storage industry has some very significant obstacles to overcome but there are better days on the horizon. Time has taught investors that there will be ebbs and flows in self storage, but the asset class always rebounds. Industry professionals know that interest rates will come down, residential sales will pick up again, and new inventory will lease up. New construction of facilities has slowed down significantly and property valuations are stabilizing.
In the meantime, invest in your property, invest in your staff, update your website, increase your marketing spend, think outside the box to capture renters who need your services and find ways to cut unnecessary expenses. The Bledsoe Self Storage Group has advised through far more challenging markets, and we’ve successfully guided thousands of owners through the peaks and valleys of each cycle. Today is the day to invest in your property, so that you can capitalize on your investment for the long haul!