Ages 65+ Should Keep Self Storage Sector Rolling
There’s been rent growth cooling in previously red-hot sector, but not for too long.
The self storage sector is cooling. It had to – after its great pandemic-induced run.
Entering 2023, Marcus & Millichap finds that most major metros reported stagnant rents and rising vacancy as demand cooled as consumers battled inflation.
Houston, Atlanta, and the Dallas-Fort Worth metroplex rank among the top metros by square footage additions, it believes. “Southern California markets are receiving comparatively scant arrivals, despite remaining historically undersupplied, given persistently limited land availability,” it said.
“While a growing retirement age demographic and millennial cohort progressing through higher-income-earning years act as long-term supports for the sector, the near-term outlook is more clouded,” the firm wrote in a recent report.
65+ Age Group Looks Promising Longer-Term
However, looking further out, the 65+ age group will keep this sector a reliably steady performer as growth in the 65-plus age demographic has accelerated, according to Marcus & Millichap.
“The cohort is on track to expand more from 2021 to 2023 than in any prior three-year period,” it said.
“This generation will support storage usage in a time of general flux as many of its members transition into downsized living spaces.”
The firm also sees prospects in tertiary markets that need storage development, which could fetch rent growth of 5 percent or more.
“In contrast to stalling rent growth in many gateway metros last year, smaller Midwestern and Sun Belt locales showcased robust increases in asking rates,” it said.
“These cities are often within driving distance of a much larger primary or secondary market, appealing to regionally relocating households. Furthermore, self-storage inventory in these zones usually trails the national rate of supply increases.”
Marcus & Millichap believes that legislation is unlikely to have “a significant impact” on the construction pipeline.
“While certain city governments have undertaken efforts to restrict the groundbreaking of new storage projects, these initiatives are sporadic, and are often limited to temporary construction moratoriums or the introduction of sector-specific permitting measures,” it said. “Locales with solid fundamentals should see little effect on long-term development.”