Despite persisting supply chain issues, core retail sales still ticked up 3.2% year over year on an inflation-adjusted basis in April, with home furnishings and clothing retailers—both categories of items most commonly found in storage units—posting record sales volume.
And according to Marcus & Millichap, those numbers bode well for the self-storage sector.
"Purchasing in these segments should support rental usage as some older goods are placed away for safekeeping," the firm's analysts note in a new report, adding that the sector appears well positioned to withstand inflationary headwinds.
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"Although consumer activity is still upward trending, inflation has generated some concern in the near-term economic outlook," the report states. "Self-storage has weathered past downturns supported by unique counter-cyclical demand factors, including use stemming from household contraction and necessity-based relocations. Because most self-storage units are leased on a monthly basis, asset operators have greater flexibility to adjust rents according to market trends, including inflation."
According to YardiMatrix, street rates across the self-storage sector are hitting historic highs. The $130 average rate in April for 10×10 units that are not climate-controlled matches a peak last reached in August 2021. The $147 average for climate-controlled units is within $2 of the highest rate historically. Metros in the Southeast are posting the highest street rate growth in self-storage, led by Atlanta, Charleston, Charlotte, Miami and Tampa.
From an investment sales perspective, rising interest rates may change the buyer pool. Marcus & Millichap notes that some institutions are pausing deals until rates settle into a "new normal"—but private equity buyers are more flexible, and could thus grab more market share in the short term.
In addition, "mounting capital costs have also prompted more diligence on behalf of owners and lenders," analysts state. "Prospective sellers are prioritizing buyers with an established transaction history and financing relationships."
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