Even before the COVID-19 outbreak led to a current global pandemic and a recession triggered by nationwide lockdown orders, certain market forces were already working against the storage industry. Mainly, an unprecedented growth in supply since 2015. On top of that, we’ve seen over the last couple of years that consumer demand has not kept with that growth in supply. And operators were already thinking about how to operate even more efficiently.
And then, the pandemic hit and turned life and the economy upside down. The pandemic and nationwide lockdown orders accelerated the gap in consumer demand. The balance of the industry was shifting to one of increasing supply and decreasing demand. Despite the combination of those market forces and the unforeseen force of nature that COVID-19 has been, it has not created a doom and gloom situation for the storage industry. As many of you know, our industry continues to perform well compared to other industries.
However, challenges remain, and no one knows what the next six to eighteen months and beyond have in store. To help operators combat those market forces, our next series of webinars will outline four imperatives that will position their business for success.
But before we do that, we invited our friend Cory Sylvester from Radius to discuss what was happening in the market pre-COVID, how it reacted during the outbreak and what to prepare for and expect in the market beyond COVID-19. You can view that webinar, here.
Pre-COVID State of the Market
As we mentioned earlier, there were already market forces in motion within the storage industry that were going to make 2020 a potentially challenging year for operators. According to Cory, as we entered 2020 self-storage was just coming down from the peak of our largest development cycle in the industry’s history. This led to market oversaturation where 40% of the top 100 markets passed equilibrium. In other words, supply had exceeded demand.
Cory also added that this was further illustrated by lease up times consistently lengthening as we moved through the development cycle. The compounding supply growth has a strong correlation to long-term rental rates, leading to a decline in areas that were oversupplied as operators had to more aggressively compete for leads, often by racing to the bottom on price.
The market forces at work before the pandemic meant operators were likely going to have to evaluate and fine-tune their operational and marketing plans.
COVID Impacts on the Market
Along came the novel coronavirus, which causes COVID-19. This really turned all of our worlds upside down. At first, personally and then professionally. The economy experienced the shock of the pandemic and subsequent lockdown orders. Entire industries had to either reimagine how they operate or shut down entirely. However, the storage industry was fortunate and deemed essential in all 50 states. While being allowed to remain open was good news, it presented a new set of challenges for us to solve.
Operators across the nation scrambled to create safe, contactless experiences for both their employees and customers. At Storable, we quickly shifted our engineer’s focus to release a number of features to assist in the transition to contactless operations.
Aside from the safety concerns of both their employees and customers, which were incredibly important, the next concern for operators was what impact would all of this have on their business. While many businesses saw an immediate plunge in demand, like retailers and restaurants, storage actually saw a huge increase in demand during the early weeks of the lockdown. This was largely due to the fact that most colleges across the country sent students home early. Meaning the usual summer uptick in student customers came months earlier than usual.
Another interesting trend we found early in the pandemic was that while searches for storage decreased, the intent to purchase based on those searches increased. Another major factor in how well your facility has fared during the crisis is by your ability to offer contactless move-ins. In fact, nearly 80% of reservations on our SpareFoot Marketplace go to contactless facilities. It’s safe to say that the consumer desire for contactless operations will not be temporary and, in fact, will become a defining element of our industry moving forward.
By late April we started to hear from many operators that it felt like the shock and adrenaline of the health crisis had started to wear off. Not only had they solved a lot of the COVID-specifiic business challenges, but many states were starting to lift restrictions and consumers were getting back out into the market.
Post-COVID State of the Market & Beyond
The truth is, we’re still far away from a post-COVID world and market. While lockdown orders have expired and parts of the economy have gotten rolling again, we still won’t really be in the clear until there’s a viable vaccine or effective treatment. Even still, our industry has shown we can not only operate safely during a pandemic, but also successfully.
And while our industry is certainly feeling the economic impacts of these market forces compounded by the COVID-19 health crisis, it’s clear that the floor hasn’t dropped out from under us.
We don’t know what the future holds, but we do know there could be long-lasting effects on the economy that won’t rear their ugly head until further down the road. For example, if the unemployment rate remains at historically high levels, that could negatively affect operators well into 2021. There have also been some early signals in the markets, including a historic jump in retail sales for the month of May, that could indicate a more V-shaped recovery. Again, a lot remains to be seen but there are positive indicators out there.
We will continue to operate from the conservative position of, “we simply don’t know what’s going to happen.” Because of that, our next round of webinars is focused on The Four Operators Imperatives that we believe will continue to position your business for success while preparing you to combat any other expected, or unexpected, market forces.