Self-Storage Demand Is Stabilizing After Covid-Led Surge

Demand in the self-storage sector is stabilizing following a COVID-induced surge, and analysts at one brokerage say oversupply concerns are now safely in the rearview.

A recent Marcus & Millichap investment forecast for the self-storage asset class predicts the pace of rent growth, which increased by 13% on average nationally for a standard-sized unit since March 2020, will moderate as some – but not all – of the pandemic-related demand drivers decrease.

Office and campus closures in particular drove many Americans to house their belongings in storage units as spare rooms became used for other purposes like remote learning, work-from-home and exercise. Between March 2020 and September 2021, according to Marcus & Millichap data, self-storage vacancy fell by 460 basis points to a record low of 5.5%. And “the rapid drop in availability has restored rent growth after the surge of development in 2018 and 2019 added 142 million square feet to the sector, weighing on asking rates,” the report notes.

“Even as many places reopen, not every home office or garage gym will be taken down. At the same time, the tight labor market is lifting income, supporting robust household formation and elevated retail spending,” the report predicts. “All of these factors bode well for self-storage properties in the coming year.”

None of the US metros tracked by Yardi Matrix has seen negative street rate growth for any unit type: rent growth was 5% or more in 22 of the top 30 markets for non-climate controlled units and in 19 of the top markets for climate-controlled units. Yardi is also tracking more than 3,000 self storage properties nationally in various stages of development, including 734 under construction, 1,285 planned and 508 prospective properties. The new supply pipeline nationally is pegged at 8.9% of existing stock. Growth has been concentrated in secondary markets across the South, Southwest, and West, especially in Las Vegas, Phoenix, and Dallas.

Changes in migration trends will also benefit the sector, particularly in satellite cities and the Sun Belt. Millennials, the largest share of self-storage users, continue to relocate to bigger cities in the suburbs or to secondary and tertiary markets. And retiring baby boomers are also supporting demand, according to Marcus & Millichap.

“These two demographic trends will underpin self-storage needs for the foreseeable future, even as demand and supply rebalance following the health and economic shocks of the past two year,” the firm’s analysts predict. A so-called “ravenous demand” for recreational vehicles could also be a boon for the sector, particularly as companies force a physical return to the office.

New construction of self-storage units will be “well below” recent peaks, thanks largely to materials and labor shortages plaguing the building industry: “In some cases projects cannot find the materials needed to finish,” the report notes. “Further on the horizon, development is likely to increase again as these hurdles are overcome.”