Icarus flew too close to the sun, his wings melted, and he crashed into the sea.
In 2021 and 2022, the self storage industry was flying high, too. Record occupancy had operators chasing ideal pricing levels and had big money pouring into new facilities all across the country.
Then in 2023, we started to feel that sun beating down on us, and the wax on our wings didn’t feel as strong as it had the year before.
Is 2024 the year we all collectively crash into the ocean? Or can we keep flying?
We’ve put together a State of the Industry post here to help our operators understand exactly what the situation looks like, what they can expect in the coming six months, and how to measure success in a post-boom industry.
Key Points -
In 2021 and 2022, the industry boomed, due to the pandemic, pandemic relief, work-from-home, and a bunch of other factors.
In 2022 and 2023, big money started pouring into the industry because self storage was a certain investment - it was basically free money! More construction, more consolidation.
Now, in 2023 and 2024, these new facilities are online, demand has fallen off, and competition for renters is getting fierce.
That leaves us with now: more facilities and more companies competing over fewer leads.
The good news is that this won’t last forever - demand will stabilize, and competition will level out. That’s just the way the system works.
Unfortunately, competition levels out by having some companies go out of business. That’s less competition for those of us still in the game, but not great news for those who crash out.
We’ll go over the current situation, so you can have a good understanding of where you are in this process, as well as leaving you with a few things you can do to keep flying.
Universal Storage Group sat down with us a few weeks ago to talk about their approach to storage. Anne Ballard (you may have heard of the Hat Lady) gave us an in-depth look at how their properties are performing across the country, as well as a summary of how the biggest players in the industry (the REITs) are doing.
Take a look:
The pandemic years stand out, obviously, and 2023 still saw some growth, but Quarter 1 and Quarter 2 of 2024 have seen no growth and even some loss.
This doesn’t mean that the REITs aren’t making money - they’re just not growing profits.
USG also had more people moving out of their facilities than into their facilities on average over 2023 – the same-store average was -7, causing their occupancy to dip by about -4.5%!
And USG isn’t alone. The REITs, even with their aggressive pricing tactics, aren’t making any more money this year than they were last year.
We could speculate as to the reasons - maybe customers are getting wise to the hyper-aggressive rate hikes? - but the drop in demand is industry-wide. There are pockets where demand is still rising as people move to the new areas, but no matter where you are, you can expect to see demand for your products slowing down.
It’s nice to know you’re not alone!
Often when times are hard for small business owners, it’s due to some big business moving in down the street.
USG took the publicly available information put out by the REITs (since they’re publicly traded, they have to give regular reports to their investors) and compared it to the last years.
It seems like the REITs are having similar difficulties filling storage units and keeping revenue growing. This makes sense if the problem is that we’ve simply got more storage than we do demand.
Smaller businesses may not be losing out to the REITs - there’s just less demand to go around.
ISS put out an analysis of the state of the REITs at the end of 2023, which has more information about the exact numbers. The headline: occupancy is down across the board.
We’ve talked to a few non-REIT big players who are still finding ways to make more money without increasing occupancy.
New renters are the default way we think of making more money in self storage - and it makes perfect sense! If you were running a restaurant, you make more money by getting more people to eat at your place.
There are fewer renters to go around now, and it’s not likely you’ll find a way to grab all of them out of the hands of the REITs and your other competitors. Even if you do fill up, your competitors will drop rates so low that you’ll lose those customers (or lose money trying to match).
Getting more tenants is only one way to increase your revenue, though.
You can also get more for each unit you rent or you can cut your expenditures.
Storage Asset Management (or SAM to their buddies) has managed to increase revenue in Q2 of 2024 despite the losses seen by the bigger brands - you can check out their blog here!
Here are a few things they did to manage this:
Both SAM and USG (two of the biggest non-REIT players in self storage) are celebrating their achievements - but they’re not touting exponential growth, they’re happy that they haven’t fallen yet.
And they’re right to do so! When the whole industry slumps, but you don’t, that’s a win.
Lots of people got into self storage because of how well the industry did in 2021 and 2022. It’s also a famously recession-resistant industry, because people need storage when life gets chaotic.
The pandemic is over, but the new competition isn’t going away.
The good news is that new construction is slowing down! So the influx of new competition is going to slow, then potentially stop altogether as the increasingly difficult environment dissuades new investors.
Occupancy and demand seem to be trending back down to where they were pre-pandemic. Here’s a glance at what this new normal will look like (according to YardiMatrix):
Here are a few other highlights from around the industry:
So if it feels like your wings are melting and you’re not soaring like you were a few years ago, you’re probably right!
No one is doing as well this year as they were two years ago (and if you are, know that the rest of the operators are very annoyed with you!)
This new normal isn’t a death sentence for your business. Self storage was a strong industry in 2020, and it’ll be a strong industry in 2025. Operators will have to adjust their expectations and, if you’ve just been coasting, work harder.
Buckle down and keep flapping.
With the increased competition in the industry, there’s no room for businesses that aren’t paying attention. What that means for each business is going to vary depending on how you operate, who your customers are, and how much you’ve already got going for you.
Here are a few suggestions, mostly from USG but with a bit of our own suggestions thrown in:
These are the ones USG called out as helping them keep positive revenue growth during a slump in demand, but there are more.
And don’t give up on occupancy altogether, either! With fewer renters to go around, getting your self storage marketing right is even more important than it was before.
If you’re looking for ways to increase self storage occupancy, we can help you there too.
The numbers may not be going up the way they were two years ago - but that doesn’t mean your business is going to crash. You’re just going to have to flap harder.
For some more ways to keep making money during a downturn, check out:
