Self-Storage Still Has Plenty of Run Room

Moody’s expects to see the supply of new stock in self-storage consistently decrease as the industry expands over the next several years and the vacancy rate to follow suit. 

The vacancy rate is expected to reach 11.5% by 2025 and 10.1% by the end of the 10-year forecast in 2030. 

In light of strong results in the first three-fourths of this year, 10×10 climate-controlled rents are projected to end 2021 by growing to 8%, implying the possibility of a slow-down in growth in the final quarter of the year.

Similarly, 10×10 non-climate-controlled rents are projected to finish the year growing by 7%, which again implies that these units will also experience decreased demand in the fourth quarter. 

Long-term rent growth projections for both 10×10 climate-controlled and non-climate-controlled units are forecast to level at 2% per annum from 2024.

Nareit: It’s Been a ‘Banner Year’

Year to date, though, the self-storage sector has been on a tear. 

“Self-storage has had a banner year in 2021, building on its strong performance in 2020,” Nareit senior economist Calvin Schnure tells GlobeSt.com. “Strong housing markets and greater mobility in an era where some employees continue to work-from-anywhere all fuel demand for storage.”

He said that there may be some downside risk if a reduction in employees who are working from home decreases the need to clear out spare rooms in homes and apartments. 

In terms of cyclical vs structural changes, he said that self-storage “is riding a longer-term wave that is likely to remain robust due to strength in housing markets.”

In Terms of Affordability: No Alarm Bells Yet

In the short-term, though, the market is pushing to bring more supply—and write more deals—to answer the strong demand. 

Drew Dolan, principal and fund manager of DXD Capital, for instance, believes that there will be more one-off transactions and mom-and-pops springing up nationwide as people seek to do something new.

“Construction costs are not yet deterring deals, so we expect that it will be more important than ever to be judicious about the markets investors choose to develop in,” Dolan tells GlobeSt.com. 

A longer-term question for the industry is whether demand will lessen as rental rates rise, especially amid rising inflation. 

Rates will show high single or low double-digit growth year over year, Dolan says, adding that it remains to be seen if inflationary pressure will mean fewer people will be able to afford self-storage. “However, with wage growth accelerating and the small portion of self-storage accounts making up part of the average user’s monthly expenses, no alarm bells are ringing yet.”

2021’s Year End: Vacancy Forecasted at 13%

Moody’s said that for the remainder of 2021, it expects the supply of new properties to increase, with a year-end total of 195,015 units coming online. 

Despite strong projected inventory growth, the forecast for the vacancy rate, at 13%, is expected to remain well below the 2020 year-end vacancy rate of 14.6%.