A consensus is forming among economists and officials that the country is likely to experience an economic slowdown, but not a full blown recession in the months ahead.
In recent remarks, U.S. Treasury Secretary Janet Yellen remarked said she was “feeling very good” about a soft landing for the U.S. economy.
“I think you’d have to say we’re on a path that looks exactly like that,” Yellen told the press following the recent G-20 Summit overseas.
Many economists agree with the sentiment, including 69% of those surveyed by the National Association for Business Economics who said the country is heading towards a soft landing. That’s a reversal from March when a majority of respondents were foreseeing a recession.
While the fate of the national economy remains uncertain, for now it seems that the self-storage industry has achieved it’s own soft landing —with many operators emerging from the COVID-19 pandemic flush with cash, and money continues to seek its way into the sector. Unlike other real estate categories, self-storage has experienced little distress. While street rates have tempered since last year, seasonal demand has normalized and remains strong.
With the peak leasing season behind us, let’s take a closer look at pricing and occupancy trends to see where the industry stands as it heads into the fall.
Pricing
Self-storage prices returned to a more normal pattern of activity this summer, with prices peaking in June and receding through the rest of the summer. Self-storage prices nationwide averaged $102.97 per month across the SpareFoot network in June 2023. That is about 13% lower than the same month in 2022.
Prices dropped to an average $100.48 per month in July, and further to $98.45 in August. The August average was about 15.86% lower than the rates achieved during the same month a year ago.
Despite tumbling from the peak rates commanded under the height of the COVID-19 pandemic, the industry’s pricing power overall remains strong. August rates were up more than 10.4% compared to the pre-pandemic year of 2019. Although when adjusting for inflation, rates are down about 7.2% compared to the previous year.
Takeaway: This year marks a return to seasonality for self-storage operators. The industry overall has held onto much of the pricing gains it enjoyed over the last few years, but inflation remains a drag.
Occupancy and Move In Rates
As with pricing, self-storage occupancy and move in rates are also coming back down to earth. Self-storage occupancy fell by more than 4.2 points from August 2022 to August 2023, putting late summer occupancy more in range with pre-pandemic levels
Also inline with seasonal trends is move in and move out activity. In August, more tenants moved out than moved in, with about 9.3 new tenants for every 10 that vacated a unit.
During the prior three months, the industry experienced healthy move-in activity:
- In May, 13.1 tenants moved in for every 10 that moved out.
- In June, 11.8 tenants moved in for every 10 that moved out.
- In July, 11.5 tenants moved in for every 10 that moved out.
Takeaway: Despite continued headwinds such as high interest rates and declining home sales, storage demand remains healthy overall and move-in and move-out activity is slightly improved over last year. A healthy job market and growing GDP provide a boost, while a tighter lending environment and tougher scrutiny from local planners is keeping new supply of self-storage units in check.
Looking ahead
Last year rates tumbled rapidly during the second half.This was in part driven by the exodus of pandemic-impacted tenants. As we return to a more normal, seasonal pattern of renter behavior, the expectation is that rates will decline more slowly through the fall and winter. Keep an eye out for the next Storage Monitor for further updates on the self-storage industry.
