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Category: Self-Storage Tags: GlobeSt, self-storage

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The self-storage sector was an unexpected victor after the pandemic. Ranking among the top performing asset classes in commercial real estate in 2021, self-storage racked up $10.9 billion in sales transactions, representing a 161% increase over 2020.


The historic performance was driven by relocation trends over the last two years, where people moved to new cities across the country. Although migration activity has settled, the fervor for self-storage has continued into 2022, says Austin McLeod, associate VP of the self-storage division at Matthews Real Estate Investment Services. Now, work-from-home policies are driving demand for storage space.


“Remote work has created and will continue to create demand in self-storage,” McLeod tells GlobeSt.com. “In 2022, the market has still been strong. Occupancy has remained high and rental rate growth has been steady. This year, investors are still bullish on the upward trajectory and the continued growth in the coming years.”


The sector’s voracious growth has tempered somewhat in 2022, largely because the number of people moving has slowed. “We had never seen that much movement ever, and that definitely drove up demand for storage,” says McLeod. “We may see that calm down as people settle into their new homes and new locations.”


Typically, multifamily activity is linked to self-storage activity, and while that hasn’t changed, McLeod says new workplace strategies are also contributing to demand. “The office market can definitely have an impact,” he explains. “Some of the biggest storage tenants are businesses, whether it is renting space to store files or furniture.” In addition, the total number of households relying on self-storage reached 10%, according to research from Matthews.


The combination of these trends has led to resiliency in the sector. Yardi Matrix reports that rates for non-climate 10×10 units increased $1 in the month of May Y-o-Y. By June, the average rate for a non-climate controlled unit grew to $131, and four of the five largest self-storage REITs increased their same-store revenue outlook for the rest of the year.


“We are still seeing a ton of capital chasing these deals. The most active groups are still looking for deals to purchase,” says McLeod, but some economic headwinds like rising interest rates and inflation have softened investment zeal. “The buyers will still be there, but I think they will have to be a little more selective in order to still hit their numbers with the cost of capital being higher.” In addition, inflation could shift self-storage units from “necessary” to “discretionary” spending for low- to medium-income families, hampering demand and ultimately rental rates.


Despite these emerging challenges, McLeod is optimistic about the near-term outlook for the sector. “The demand for these investment opportunities will always be there,” he says, predicting slower but steady growth. Overall, the industry is projected to grow to nearly $65 billion in value by 2026.


Repost from GlobeSt.com

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