ISS BLOG - How Current Market Challenges Can Lead to Innovation and Resilience in the Self-Storage Industry

Recent reports have highlighted a notable trend in the self-storage industry: declining rent rates. It’s a market shift that presents unique challenges for facility operators. However, today’s market conditions also create unique opportunities for growth and strategic improvement. In fact, it's often in times of uncertainty that innovation shines. Consider the pharmaceutical industry's rapid response to COVID-19, for example, or car companies’ pioneering hybrid technology amidst environmental concerns.

In self-storage, we now have a chance to reimagine and refine our operational practices. Let’s explore how we can not only weather current headwinds but emerge stronger and more resilient.

A Focus on Long-Term Growth

High interest rates are reshaping the commercial real estate landscape. While the broader sector is navigating high delinquency rates and record vacancies, self-storage faces its own struggles due to a frozen housing market, which reduces demand for our product.

This tough environment can be beneficial for facility operators, though. It compels you to sharpen your focus on operational efficiency, moving away from reliance on easy profit and toward strategic, long-term planning. This shift encourages innovation in marketing and customer-retention strategies, which are crucial for sustainable growth.

One key area for innovation is technology. By leveraging advanced facility-management systems, you can streamline your operation, reduce costs and enhance service quality. For instance, automated access control, security systems enabled by Internet of Things, and predictive-maintenance software can significantly improve efficiency and reduce downtime.

Improving customer experience is another critical strategy. Competitive pressure makes it essential to retain the self-storage tenants you already have. Delivering personalized and responsive service can drive higher retention. According to my company’s recently published “Tenant Insights Report,” service is a key determinant for customers when choosing a facility, with 83% saying it’s at least somewhat important and 39% marking it as very important.

The industry’s ongoing challenges underscore the need for strategic foresight. By focusing on long-term, sustainable growth, self-storage operators can not only survive the high-interest-rate environment, they can position themselves for future success.

Course Correction and Increased Accessibility

Declining self-storage rental rates aren’t the emergency some think they are. The pandemic drove up demand and increased pricing exponentially. Now, the industry is course correcting, aligning its pricing with broader economic trends. This helps to stabilize the market, ensuring that rates reflect actual demand rather than temporary spikes in demand. Moreover, average monthly occupancy still hovers around 85%, which is extremely healthy compared to other real estate sectors.

Lower rental rates can also bring several benefits. More affordable pricing can make self-storage accessible to a wider range of consumers, which could increase overall demand and occupancy. They also present an opportunity to attract new renters from previously underserved markets, fostering long-term growth and diversifying the customer base. Again, this strategic adjustment not only helps operators endure, it sets the stage for long-term viability.

3 Key Areas of Transformation

Indeed, it’s time to create a more resilient and forward-thinking self-storage industry! For me, there are three key areas of transformation:

Technology and digital mastery. This is no longer optional; it's essential. Implementing online rental and payment systems can streamline a self-storage operation and provide convenience for customers. Enabling remote access is also key, as the modern tenant increasingly prioritizes speed and accessibility.

Using artificial intelligence (AI) and data analytics for unit pricing is another game-changer. By analyzing trends and customer behavior, self-storage operators can make informed decisions to maximize revenue and occupancy. AI-driven insights can be used to adjust rates dynamically, ensuring competitiveness and profitability in a fluctuating market.

Product diversification. Offering complimentary products and services like packing supplies, moving assistance or full-service storage can provide added value and convenience for self-storage customers. You can also take advantage of demand for specialized options such as boat/RV storage, wine storage or business storage. By accommodating these unique needs, you can attract a diverse customer base and enhance your reputation for tailored services.

Environmental sustainability. This is becoming increasingly important to consumers. By implementing green building practices—for example, using sustainable materials and energy-efficient utilities—self-storage operators can reduce the ecological impact of their facilities. Moreover, it demonstrates a commitment to environmental responsibility.

Effectively promoting your eco-friendly practices is key to reaching eco-minded consumers. Highlight your environmental initiatives in marketing materials and customer communications to differentiate your facilities in a competitive market.

Building Resilience for the Future

Let’s view this period as an opportunity rather than a setback. Self-storage operators should seize this moment to enhance customer experiences, strengthen their business and explore new avenues for growth. I encourage you to embrace innovation and adapt to changing market conditions. By doing so, we can ensure the industry continues to thrive, offering valuable services to a broad range of customers while building a foundation for long-term, sustainable growth. Let's take this opportunity to lead our businesses into a bright and prosperous future!

Chuck Gordon is CEO of Storable, a supplier of various products and services for the self-storage industry including cloud-based access control, management software, marketing and website services, payment processing, tenant insurance, and others. In 2008, he cofounded SpareFoot, an Austin, Texas-based company that provides self-storage unit listings. To reach him, email [email protected].