A recent Wall Street Journal article noted that a flood of new supply is expected to weigh heavily on the self storage industry. While the sentiment of the article was negative, there are several key factors that could have a strong, positive impact on the state of the self storage sector.
Historically, self storage has been very resilient, performing better than other asset classes even during a recessionary period. In the past, corporate downsizing has spurred an uptick in moving, which has translated to increased self storage activity. As noted within the article, self storage is still seeing rent growth, just not at the double-digit rates that we were accustomed to between 2010 and 2015.
As the supply pipeline continues to grow, I would argue that there will be continued demand for space that will continue to fuel leasing activity. Population growth is one key factor that has always boosted the sector and this demand driver looks to hold up in the years ahead. At the same time, there is a shift of millennials who are starting to form households, moving to the suburbs and acquiring belongings that are often well-suited for self storage (e.g. seasonal goods such as pool supplies, patio furniture, holiday decorations, etc.).
Lastly, with new supply coming to market, owners of functionally obsolete product will be at a crossroads and in some cases will be required to provide upgrades to their facilities to compete effectively with new self storage properties. Without a doubt, these facilities will be most impacted by the wave of new supply.
The investment outlook for the self storage sector still remains strong and the new supply coming to market should be seen as a positive that will create healthy competition in the marketplace.
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Ten-X Commercial is the nation’s leading online, end-to-end transaction platform for commercial real estate. Since 2009, the company has sold more than $18 billion in commercial real estate. The company blends data-driven technology with industry expertise to accelerate close rates and streamline the entire transaction process. Ten-X Commercial and its parent company, Ten-X, are headquartered in Irvine and Silicon Valley, Calif., with offices in key markets nationwide. Investors in the company include Thomas H. Lee Partners, L.P., CapitalG (formerly Google Capital) and Stone Point Capital.