By Barbara Byrne Denham and Cody Bond
Source: Reis Inc.
Growth in Self Storage Inventory vs. Occupancy
Year-over year inventory growth [left axis]
Year-over-year occupancy growth [left axis]
Vacancy rate [right axis]
Year-over-year rent growth [right axis]
The self-storage sector’s glory days are waning
After years of robust growth, the self-storage market is showing signs of a slowdown this year. Following three
years of annual growth rates of 3. 8 percent to 5.2 percent, yearly rent growth fell below 3 percent in each of the
first two quarters of this year.
Long a favored asset by seasoned real estate investors, the self-storage industry saw tremendous growth as more
people moved into urban apartments with limited storage space of their own. Demand surged as more Americans
sought extra room for their belongings.
By 2015, developers quickly realized
this growth potential and ramped up
development of storage units. Building
self-storage facilities is far easier than
most property types. New self-storage
buildings can seemingly pop up overnight in some markets, especially in old
converted industrial buildings.
The chart on this page shows how the
rate of supply growth slowly began to
catch up to demand growth in early
2015. In fact, inventory growth matched
or even exceeded demand (occupancy
growth) in the first two quarters of this
year. This added supply eased pressure
on rent growth.
These national statistics obscure widening gaps between regions across
the country, however. Some regions
are outperforming others, and the difference has been driven by the gap between growth in supply versus demand.
In terms of rent growth, the West — including California, Oregon and Washington — has seen no deceleration
in rent growth this year. Over the first two quarters of this year, annual rent growth rates were 4.2 percent and
3. 8 percent, respectively. Indeed, new construction has trailed net absorption in the West region — even through
the second quarter of 2017.
In the Southwest, however, construction increased in 2015 and then soared in 2016. As a consequence, rent growth
year over year decelerated rapidly, from a high of 5. 4 percent in second-quarter 2015 down to 1.4 percent in
At $97.67 per unit, the average rent in the Southwest for a unit that is not climate controlled is the lowest in the
country and the only regional rent lower than $100. This region includes Texas, where a number of metros have
suffered from disruptions in oil prices.
Self-storage rents in the Midwest had kept pace with other regions from 2011 through 2014, but then started to
decelerate in 2015, long before the other regions. Indeed, construction growth exceeded demand growth in the
Midwest as early as 2015, and annual rent-growth rates fell from an average of 4. 4 percent in 2014 to 1.3 percent
Ironically, because rent growth in the Midweest region dropped in late 2015, developers slowed their rate of
construction. As a result, vacancy rates have held steady and rent growth stayed approximately the same over the
first two quarters of the year, growing 1.3 percent and 0.4 percent, respectively.
The other two regions — the Northeast and the South Atlantic — also have posted a marked deceleration in annual
rent-growth rates over the past few years. Both of these regions have seen less overbuilding than other regions,
but both posted second-quarter 2017 vacancy rates that were above low marks recorded in second-quarter 2016.
The general sentiment that the golden days of the self-storage industry are in the past appears to be true.
The industry has slowed. Still, it is important to consider market differences across regions and metros. Doing
so can still yield high-growth opportunities that buck the national and regional trends.
Just as important, however, are the changing characteristics of supply and demand. Trends in consumer and
producer activity — the basic building blocks of any market — will continue to reveal insights into the underlying
complexities of the self-storage industry. n
Cody Bond is an economic analyst
in the Research and Economics
Department at Reis Inc. He earned a
bachelor’s degree in economics
from Tufts University. Reach him at
Barbara Byrne Denham is an economist in the research and economics
department at Reis Inc. She previously
served as chief economist at Eastern
Consolidated and is a Ph. D. candidate
at New York University, where she
has studied economics, monetary
theory and game theory. Reach her
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