The Self-Storge Rocket May Be Returning to Earth, But Here’s Why That May Be a Gift to Your Operation

To get a bird’s eye view of what’s going on nationally across the self-storage sector, it’s long been a smart play to pay attention to what the publicly traded real estate investment trusts report each quarter with respect to their investments, development activity and operational data including rates, rental rate per square foot as well as fluctuations in expenses in relation to impact on net operating income.

The collective footprint between the REITs is enormous, so tracking trends across several thousand self-storage facilities is a worthy practice for small operators to not only serve as a barometer for their own facility performance, but gain insight to trends that may be emerging in their own marketplaces and business.

For months, we’ve been hearing rumblings about cooling demand and softening rates across many self-storage markets, a notion that’s been supported by REIT performance as well as those who keep a close watch on rates and development activity via the industry’s various online-tracking resources. The inference has been that the sector is returning to earth after spending months in the stratosphere.

So, it was very interesting last month, when I had the opportunity to sit in on a keynote presentation by Mike Burnam, president and chief investment officer, for StorageMart, during the California Self Storage Association’s annual owner’s conference. It's not every day that you get a peek inside the data of the industry’s largest privately held operation, which owns more than 24.2 million rentable square feet of self-storage.

In his talk, Burnam shared quite a bit of proprietary information on the company’s performance—some dating back 20 years—to help hammer home the conclusion that what’s occurring across the nation should be expected because it signals a likely return to pre-pandemic conditions. In other words, normal.

As he pointed out, 14% revenue growth is bonkers when something closer to 3.5% is typical. So, while the rocket-ship ride between 2020 and 2022 was exhilarating and helped fuel a frenzy of outside investment, it’s important to see that the parachute has been deployed and the nose is pointing downward.

If a return to the vicinity of normal is on the itinerary, then the challenge for operators is how to address the inevitable decline and make decisions designed to slow the descent. Among the best ways to do that is to make sure you’re fundamentally sound. The onus in a slowing market falls back on how well you manage day-to-day operations, which is why last week we recorded a Sounds of Storage podcast episode with Rick Beal and Magen Smith, co-founders of third-party management firm Atomic Storage Group.

In the eight-minute interview, Beal and Smith offer their perspective on what’s driving the current market as well as some reasons for the slowdown in demand velocity, all with the backdrop of an inflationary environment. They share some of what they’re doing within their own operation and opine on the adjustments they believe facility operators should be making to ensure continued success. They also offer advice for balancing increased costs with diminishing returns.

Between Burnam, Beal and Smith, the consensus seems to be that the keys to sustained success lie in how you attack pricing, marketing and expense management. You can’t get much more fundamental than that. All three recommend digging deep into your performance data to forecast future demand and provide direction. The insight you can gain by scrutinizing your own numbers can be eye-opening and illuminate paths in which adjustments (including increases) to rates and spending may be warranted. Similarly, taking a critical eye to the numbers can help reveal where you can save money.

In addition to the linked text above, here are some ISS resources on revenue management and marketing that can be useful in shaping your business to perform at its best in the months ahead:

Revenue Management

Marketing

Keep in mind, as well, that the technological advancements of the last few years, including improvements in automating some or all areas of a facility, also offer opportunities to increase efficiency and cut costs to maintain favorable margins.

What’s happening in pockets nationwide can actually be a good thing. It’s never a bad time to take a hard look at the business and shore up the key areas of your operation that keep all the gears turning smoothly. Now’s a great opportunity to make sure managers are well-trained in all facets including how to scrutinize and extract information from financial reports, so that the knowledge gained can be leveraged into actionable change.

No matter what the market conditions are, those who continuously execute the core tenets of the business the best are always in an advantageous position to capitalize when the pendulum swings through the shadows as well as into the light.

So, if the parachute has indeed deployed in the markets where you operate, doubling down on the tried and true areas of the business will help provide balance and steady the ship to come in for a nice, smooth landing.