Industry Outlook for 2008

Overall occupancy levels and rental rates for self-storage fell moderately last year. While cooling economic conditions have played a vital role in the change of fundamentals, so has the increase in completions. Developers bumped up inventory by 17 percent in 2006 and an additional 8 percent in 2007, resulting in increased competition.

The national average occupancy of self-storage properties dropped 110 basis points to 79.6 percent in 2007. Losses, however, varied by location. Industrial and commercial/retail areas recorded the largest adjustment in occupancy, dropping 150 basis points to 79.1 percent between 2006 and 2007. Conversely, in urban, downtown and residential areas, occupancy rates for the same time period remained relatively unchanged at 84 percent and 85 percent, respectively.

Despite the modest drop in occupancies, a significant positive trend has emerged for the self-storage market: The average rental period has increased across nearly all users. The average rental period in 2007 was up approximately 11 percent for both commercial (25.2 months) and residential (13.4 months) users. The rental period for military users was up almost 10 percent, and students, who have had the largest share increase in tenant mix, were the only users that had a decline in rental period, to 4.6 months.

As a result of the overall slowdown in demand, average rents on a national basis declined slightly over the past year. Rent decreases varied from the size of the units, but the declines were between 1 percent and 3 percent on average. The North- Central region experienced the biggest decline last year as rents dropped between 5 percent and 17 percent. The western states remain strong, however, with rent increases between 3.5 and 8.4 percent, depending on unit size.