"The REITs are changing the dynamics of the game as we speak."
No one wants to hear that phrase. If big players are making moves, they're doing it to shake things up in their favor. And that only serves to put greater pressure on independent operators.
Well, now they're playing games with rates. And if you haven't been paying attention, here's John Chang of Marcus & Millichap to give you the run-down.
Question: "What trends are affecting rates in 2024?"
Check out the video clip below to hear their answers:
In this Gabfocus Session: 2024 State of the Industry, Tommy and Melissa were joined once more by John Chang of Marcus & Millichap. He broke down what trends and insights he could offer for the self storage industry heading into 2024.
Check out the full Session to dive deeper!
Don't want to watch the clip? Here's what John had to say:
One of the trends that we've been seeing, and this is driven by the REITs.
You can't really take those two sides independently. You kind of have to mash them together because of the way the REITs are playing ball now.
So, they're changing the dynamics of the game as we speak.
We've seen this happening. They're introducing those teaser rates. They're bringing in very low street rates. We've seen downward pressure on street rates. We're seeing them fall.
But what's happening is the REITs, because they have so many more properties and they have a much better information base, they're able to track the existing tenant, the normalization rates. There are no data sources that are really tracking that. [Independent operators] have a hard time keeping track of that.
But if you're Extra Space or Public Storage, you have this massive database to work with.
So what we're seeing is those street rates are getting dropped, and then the REITs are pushing those rates up on a month-to-month basis with the existing tenants.
And so, as an independent operator, if you have it managed by Life Storage, Extra Space, or one of the big ones, then you are tapping into that knowledge and that data set that they have.
If you're working as a true independent, you have a much harder time tracking those actual normalization of existing tenant rates.
So, you can play the game where you drop those rates down, but you're operating a little bit more in the dark in terms of raising rates over time. And it's a little bit more trial and error, and it's a little riskier than, say, one of the big REITs.
So, rates are going to be the battlefield in 2024, and the independents, quite frankly, are at a little bit of a disadvantage here. And they just don't have the same access to data.
So, they're going to have to work with their tenants and see where that normalization is on the longer term, sustained tenant rates."
—John Chang
