Reliving the Highlights: Self-Storage Ups and Downs of 2023, Plus What’s Up Next

It’s been an interesting year. Whether you think of it as the post-pandemic environment or the new normal, you can’t deny that most industries have made adjustments over the last dozen months, including self-storage. While supply-chain problems dominated the news in 2022, inflation took center stage this year. From gas to groceries, the cost of just about everything kept creeping up, and it’s taken a toll on consumers and businesses. While most self-storage operators enjoyed healthy occupancy and rental rates, it wasn’t the boom they experienced the year before.

In addition, higher interest rates have led to a slowdown in the housing market, which has impacted self-storage rentals. According to this week’s Self Storage National Report from Yardi Matrix, the average annualized same-store asking rate per square foot for combined unit sizes and types averaged $16.57 nationally in November, a 4.2% drop on a year-over-year basis. In addition, street rates fell on an annual basis last month in nearly all the biggest markets. The report shows combined same-store rates for non-climate-controlled units decreased in all but one of the top markets tracked by Yardi Matrix on a year-over-year basis. Meanwhile, the asking rates for same-store climate-controlled units fell in all major metros.

“Rising housing costs and incomes that have not kept pace has resulted in one of the most unaffordable housing markets in the past 30 years, stifling home sales. As a key storage demand driver, a slowdown in the housing market is dampening occupancy and weighing down street rates,” said Matrix analysts.

Even so, most operators maintained occupancy levels that were, at least, on par with pre-pandemic levels. Setting rates became a bit trickier, however. In many markets, they’ve stabilized as customers have become more price sensitive and demand has softened.

Another factor playing a prominent role in self-storage occupancy was the opening of new facilities. Many projects were put on hold during the pandemic or, at the very least, experienced delays to get to opening day. These developments along with a crop of new ones moved forward this year. Yardi Matrix reports there are more than 2,800 self-storage projects under construction or planned. ISS continues to report on dozens of new projects each month that are either launching or opening.

While the real estate sector experienced some real highs this year, including several large mergers, it has also begun to cool slightly. Again, interest rates are a factor. Yet self-storage continues to lure a variety of investors, including independent owners.

While all this might sound more doom and gloom than optimism and joy, you need to put it into perspective. Yes, occupancy and rates are leveling. Real estate transactions aren’t happening lightning-fast as they once were, but the self-storage industry remains strong. Development also continues to be robust. Overall, it’s all signs of a healthy year.

Even so, self-storage professionals need to prep for what might come in 2024. Here’s some guidance.

Operations. If you’re an existing operator, you need to keep a keen eye on every facet of your business. Create a budget, track expenses, and maintain a clean and secure property. Marketing has never been more important and the options are abundant. If you’re not already doing any marketing, start small with an email campaign or sponsoring a community event. You don’t need to spend thousands of dollars to spread the good word about your brand.

Technology. There’s so much to explore! If you’re not already using it, you need to get on board. An emerging tech to consider is artificial intelligence (AI). There are so many ways you can employ AI to improve operations and the customer experience, generate metrics about your business, and boost brand awareness through creative marketing.

Smart investing and development. Self-storage is an attractive real estate asset. Whether you’re planning to buy or build, you need to conduct your due diligence. Many markets are nearing oversupply. Municipalities are also becoming pickier when it comes to new buildings. This might require jumping through several hoops or refining your plans. It’s important to be flexible, when possible. This is also true if you’re shopping for an existing facility. There’s often a disconnect between what a seller expects and what a buyer is willing to pay. Be sure to read the January issue of ISS for more insight on investing and finance, or bookmark our dedicated page on our website.

If you’re seeking more guidance to creating a banner year in 2024, be sure to join us for the ISS World Expo, April 2-5, in Las Vegas. The four-day event is filled with education, networking, exhibits and much more. Registration opens in January.