The COVID-19 outbreak has thrown the world into turmoil. Simply put, no one was ready for it. As a result, the economy has rapidly fallen into a recession.
Now, more than ever, storage operators must make the right decisions to ensure that they are putting themselves in the strongest possible position over the months ahead. Our goal is to sift through the signals and noise and bring the industry helpful guidance and support during the present turmoil. The coronavirus response will have broad-ranging effects on our industry, and Storable wants you to know that we are all in this together.
The state of the industry
Before the coronavirus became a global pandemic, the self-storage industry was already facing a number of new headwinds including oversupply, shifting consumer expectations and rising operating costs.
Over the last three years, more than 2,800 new self-storage facilities have come online. The surge in facilities has led supply to exceed demand in 40% of the Top 100 markets in the country. That has resulted in downward pressure on average national rates. For example, the average price for climate-controlled 10×10 units has dropped 12% since last year. 1
In 2019, the time consumers spent on mobile devices exceeded the time spent watching television for the first time in history. More and more, customers expect to conduct a majority of their transactions online with a mobile device, and renting a self-storage unit is no exception. Operators that do not upgrade their technological capabilities risk being left behind as their competitors embrace the ability to reserve and lease units online. That need has become even more paramount as consumers limit face-to-face encounters during the current pandemic.
The shift to digital has led operators to spend more than ever before on digital advertising. With the effectiveness of online ads now firmly established, the cost and competition continues to rise. In 2019, we saw the cost of Google Pay-Per-Click ads rise as much as 60 percent year-over-year for non-branded self-storage terms. This trend means that the cost per customer acquisition is going up, and the efficiency of marketing spending is going down.
The net effect of these various trends has led to a deceleration in self-storage industry net operating income growth across the board. Costs are going up, while revenue is going down.
Add to that the economic effects of the coronavirus response and it’s clear why many self-storage companies are rightfully concerned about what is in store.
Since the declaration of a national emergency on March 13, the economy has gone into a state of shock. The market has reacted in the following ways so far:
- Benchmark index declined 30% since February 19.
- The Dow Jones saw it’s largest single day drop since 1987.
- The Federal Reserve dropped interest rates to between 0% and 0.25%.
All of this indicates that we should expect the market to face more challenges as the coronavirus crisis continues to unfold.
Frankly, it is too early to tell what this all means for the self-storage industry. With California, New York, Illinois and other states ordering citizens to stay home and most businesses to close, the ramifications those orders pose to the storage industry will be realized in the coming weeks. While specific state rules may vary, storage operators should know that federal guidelines identify self-storage specifically as critical infrastructure.
However, there are some encouraging early signs that the self-storage industry will remain resilient in the face of recession:
- The SpareFoot network saw self-storage reservation volume increase more than 40% during the first two weeks of March, with a 1,233% spike in demand from college students.
- A report from the National Self Storage Group at Marcus & Millichap indicated that stabilized facilities are well-positioned to withstand the near term economic impacts of the coronavirus.
- So far, self-storage has been the third-least impacted commercial property type. Overall, commercial real estate valuations have fallen 24 percent since Feb. 21, while self-storage has only dropped 16 percent, based on an analysis of REIT sectors conducted by Green Street Advisors.
As the effects of the coronavirus response continue to ripple through our industry, we will continue to bring you the insights and guidance we are using to navigate these uncertain times.
- Behrens, P., Lucas, D., & Shatzer, E. (n.d.). 2020 Self Storage Almanac: 28th Annual Addition. MiniCo Insurance Agency LLC, (28)