With the S&P 500 Index slipping into bear territory this month, the odds of a recession in the United States ticked up a little bit more. The drop in stocks is just the latest among several indicators pointing to an economic downturn in the near future.
But whether the next recession happens next quarter or sometime in 2023 is anybody’s guess.
The good news for self-storage operators is that history has tested the recession resilience of self-storage. Time and time again the industry has shown it can perform during good times and bad. But that doesn’t mean operators can sit back and do nothing and everything will work itself out.
Thriving in a downturn requires operators to make adjustments to their business practices. Preparing for those adjustments in advance will help you move more quickly when a major market correction occurs.
So what can an operator do now to prepare?
Here are three key areas to focus your efforts:
Continue navigating the supply crunch
The supply crunch continues to tighten while inflation impacts construction costs and cheap qualified labor becomes harder to come by. Rising interest rates could slow the pace of construction even more as financing for projects gets more expensive.
This means operators can expect high occupancy rates to continue in the near future. While this is good for reliability, it isn’t great for growth. When occupancy is low, it makes sense to drive demand with advertising and promotions to grow your bottom line. With occupancies as high as they are today, operators must focus on driving incremental revenue per tenant to boost NOI.
DO MORE Webinar Series Session 2: Navigating the Supply Crunch in the Self-Storage Industry
“The point is that generating incremental demand today doesn’t make sense since you are already sitting at 95%. So you have to think about your business at a more granular level,” said Matthew Beal, senior product marketing manager at Storable.
This can be accomplished through optimizing rental rates with revenue management. Analyze your data and determine how much you can raise rates on existing tenants and how often without creating too much churn. If a deep enough economic crisis unfolds, occupancies will likely tumble—so take advantage of the current opportunity while you can.
Dust off your marketing tools
In the current climate, you may have pulled back from your digital marketing efforts as there’s no point in driving demand when you’re already full. But you should use the downtime now to dig into your marketing materials and practices to make sure they’re ready to go at a moment's notice.
“It's been a couple years since people have had to drive incremental demand to their facilities but I do expect this is going to be something that has to happen,” Beal said.
Beal said now is the time to refine your SEO practices, optimize your website and make sure you have a functional online rental platform in place.
“If you start doing these things now, if those market changes start happening in the next couple months like we expect, then you are equipped and prepared to do those things proactively,” Beal said.
Be mindful of the new type of tenant
When a downturn takes place, be mindful that you’ll likely encounter tenants who are renting for different reasons than they are today. The renters you are dealing with today tend to be in a stable economic situation and can afford to pay record high storage rental rates to keep surplus items.
In a downturn, you will deal with more customers who are enduring some type of distress or dislocation. There also may be more customers in your area who won’t be able to justify renting a storage unit unless the prices come down.
“We are suggesting you change prices now, but be mindful of the fact that it might need to change over the next couple of months to a year,” Beal said.
Defend your storage operation
Looking for more ways to prepare for uncertainty?
Check out the webinar recording below featuring Storable’s Matt Beal. He is joined by Raheem Amer, President at Mini Mall Storage Properties, and Nick Newcomb, Chief Operating Officer at StorageMax.
The panel discusses lessons learned from previous downturns and what they’re doing to bolster their business against market corrections impacting our industry today.