Experts offered predictions at the New York State Self Storage Association’s investment forum.

Despite rising loan rates and already-thin acquisition yields, self-storage executives expect that prices will remain relatively firm due to the sector’s robust investor demand and strong operating performance.

Panelists at the New York State Self-Storage Association’s 2022 Investment Forum last week in Tarrytown, N.Y., said the sector is well-positioned to thrive in an inflationary environment because income comes from short-term leases and customer demand is poised to grow because of lifestyle trends.

“There will be some softening of cap rates, but not as large as it should be given the increase in interest rates,” said Brandon Goetzman, a managing principal at the Blue Vista Equity Group. Goetzman was speaking on a NYSSA panel moderated by event organizer Nick Malagisi, a managing director at SVN Commercial Real Estate Advisors.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.

Rent gains will remain modest compared to last year, but seasonal growth is expected to return in the coming months.

Although self storage fundamentals will remain healthy, the sector is expected to return to more normal seasonal growth, since increases won’t be able to match the record gains seen in 2021. Street rates for 10×10 non-climate-controlled units dropped 180 basis points to 5.8 percent from February to March, while rates for same-size climate-controlled units fell 80 basis points to 6.6 percent over the same time frame.

Slowing rent growth is more apparent in coastal gateway metros, while markets in the South, Southeast and Southwest continue to showcase record performance. Miami posted the strongest gains on a year-over-year basis, with rates for 10×10 non-climate-controlled units increasing by 16.7 percent. Atlanta and Phoenix followed with a 15 percent and 12.5 percent growth for the same unit type.

While street rates remained mostly unchanged on a month-over-month basis across the nation, some metros experienced more substantial movement. Markets such as Denver, Washington, D.C., and Boston saw street rates for the average 10×10 climate- and non-climate-controlled units rise a combined $2. After the peak last summer, rent growth was sluggish in all three markets, and this hike might indicate seasonal patterns.

Overall, combined street rates climbed by $1 in eight of the top 31 metros tracked by Yardi Matrix. However, rates remained level in 17 metros. Meanwhile, Austin, Philadelphia and Las Vegas saw combined street rates decrease by $1 month-over-month in March. Nonetheless, it is still rather early to tell if this indicates a long-term trend in the markets.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.

Secondary and tertiary markets across the Sun Belt continued to lead growth in the nation.

Thanks to positive trends and fundamentals in the storage industry, rents continued to rise in January. On a year-over-year basis, street-rate rents rose 7.6 percent for the average 10×10 non-climate-controlled and 7.4 percent for the climate-controlled units of similar size.

Overall, annual street rate performance was positive in all major metros tracked by Yardi Matrix, with 11 of the top 31 metros registering double-digit rent growth and more than 20 of these markets clocking in at or above 5 percent for the standard 10×10 climate-controlled and non-climate-controlled units.

Secondary and tertiary markets across the Sun Belt region took the lead in rent growth, with some metros experiencing double-digit rent growth for almost all unit types. On an annual basis, Atlanta recorded the highest rent increases for the average 10×10 climate-controlled and non-climate-controlled units, up 14.8 percent and 17.5 percent.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.

Although some fundamentals are expected to moderate, industry experts predict another strong year for the self storage sector.

Driven by major life-altering events, the self storage sector has experienced record growth over the past two years. Beyond the traditional demand drivers, the pandemic added new factors to the mix. Shifts in remote work and relocations, and the need for businesses to store goods and supplies locally have been major demand drivers across the sector.

As a result, the sector recorded a strong uptick in both occupancy and rental rates across the U.S.

“In spite of our concerns going into COVID-19, self storage in general, and my company, had one of its best years in the past 20 years. Tenants stayed longer, we were able to increase rents substantially and move-ins were strong,” Devon Self Storage CEO Ken Nitzberg told Multi-Housing News.

Self storage rents reached historical highs in 2021. However, as businesses and schools started to reopen, some of the pandemic-specific drivers started to diminish, leading to moderating rent growth. Although significantly more muted than before the health crisis, the effects of traditional seasonality returned, putting some additional downward pressure on rent growth.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.

Healthy demand will continue to foster a strong year for the self storage sector.

After a record-setting year, the self storage sector is off to a strong start in 2022. Although street rates for storage properties are coming off record-high gains, demand remains healthy, signaling a good year for the industry. Street-rate rents dropped to 6.7 percent for the average 10×10 non-climate-controlled units, year-over-year in December, down 180 basis points from the previous month, while same-size climate-controlled units declined 80 basis points to 7.4 percent over the same time frame.

Overall, annual street rate performance was positive in all the top 30 markets tracked by Yardi Matrix, with rent growth at or above 5 percent in nearly all the markets. Meanwhile, on a month-over-month basis, national rates for 10×10 non-climate-controlled units declined by $1 to $127, and rates for the same-size climate-controlled units also fell $1, for the third consecutive month, to $145.

The ability to work from home and virtually from anywhere fueled migration and increased the need for self storage for home offices and gyms. Moreover, businesses are also increasingly turning to larger storage units for logistics and distribution purposes, ensuring healthy demand for the sector.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.

Month-over-month rent growth remained flat or negative nationally.

Thanks to healthy fundamentals, the self storage sector remained a strong performer throughout the third quarter of 2021. Street-rate rents have increased 9.4 percent for 10×10 non-climate-controlled and 10.6 percent for climate-controlled units of similar size, year-over-year as of September. Although annual street rate performance was positive in all the top markets tracked by Yardi Matrix, month-over-month performance is starting to lose momentum.

On a month-over-month basis, street-rate rents for the average 10×10 non-climate-controlled units remained flat in September, at $128. While rates for the same-sized climate-controlled units fell 70 basis points, down from $147 to $146. This slowdown in rate growth might be due to the softening of the demand drivers experienced over the past nine months.

Despite slowing momentum, Sun Belt markets, such as Miami and Tampa, continued to showcase strong performance. Miami, yet again, led the nation in rent growth. The metro registered double-digit increases across all unit types, up 20 percent for 10×10 non-climate-controlled and 16 percent for climate-controlled units of similar size, year-over-year in September.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.

Investment volume across the country has increased 88 percent this year, Yardi Matrix data shows.

Thanks to the self storage sector’s strong performance over the past year, investor interest in the asset class continues to rise. Nationwide, nearly 30 million square feet of storage space traded year-to-date through June for a combined $2.5 billion, according to Yardi Matrix data. This marks an 88 percent increase compared to the same period in 2020 when the total sales volume amounted to $1.4 billion.

The table below highlights the top five self storage markets with the highest overall transaction volume year-to-date through June, drawing on Yardi Matrix data. The metros on the list account for more than a quarter of total investment activity—all top five markets reported a considerable increase in volume this year compared to 2020.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.

Street-rate performance was positive in all top markets tracked by Yardi Matrix.

Self storage fundamentals remained strong in May, with substantial rent growth registered across the U.S. On a year-over-year basis, street-rate rents increased 10.7 percent for the average 10×10 non-climate-controlled units and 12.8 percent for the climate-controlled units of similar size. The sector also saw considerable rent growth on a month-over-month basis—up 1.6 percent and 2.2 percent for the standard 10×10 non-climate- and climate-controlled units.

Overall, street rate performance was positive in all of the top markets tracked by Yardi Matrix, both on an annual and monthly basis. National average rates not only rebounded from the shock at the onset of the health crisis but also surpassed pre-pandemic levels. Compared to May 2019, national rates grew 6 percent for the average 10×10 non-climate-controlled and 4.4 percent for climate-controlled units of similar size.

Robust population growth and corporate relocations from California metros and other gateway markets continue to have a positive impact on the Phoenix self storage market. Asking rates reached record-high growth in May, averaging $114 for the 10×10 non-climate-controlled units and $139 for the same-sized climate-controlled units. Phoenix also registered an uptick in development activity, with projects under construction or in the planning stages accounting for 11.8 percent of total stock, up 80 basis points since April.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.

The year-over-year street rate performance was positive in 87 percent of the top markets tracked by Yardi Matrix.

Thanks to positive fundamentals, 2021 is off to a good start for the self storage sector. Street-rate rents rose 3.5 percent for the average 10×10 non-climate-controlled and 2.3 percent for the climate-controlled units of similar size, year-over-year as of January. Overall, annual street rate performance was positive in about 87 percent of the top markets tracked by Yardi Matrix for the standard 10×10 non-climate-controlled units, whereas month-over-month rent rates remained unchanged for both climate- and non-climate-controlled units.

California metros took the lead in rent growth, with some markets experiencing almost double-digit year-over-year growth for climate-controlled units. Over the past 12 months, street-rate rents for the standard 10×10 climate-controlled units increased 9.7 percent in the Inland Empire, 9 percent in San Jose and 8 percent on the San Francisco Peninsula and the East Bay.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.