Self-storage businesses were classified as essential and were able to stay open during lockdowns earlier this year, though many still recorded subdued leasing velocity in March and April, according to Marcus & Millichap’s Self-Storage Special Report issued 3Q20. However, the slow leasing activity was off-set by the number of existing tenants that stayed put, which kept occupancy stable.
Self-storage vacancy contracted sharply in the second quarter as the decrease in move-outs exceeded any disruption to move-ins. Between March and June, the national rate fell 230 basis points to 7.8%, a three-year low, according to Marcus & Millichap.
Despite the drop in vacancy, self-storage owners and operators have been reluctant to raise rents, primarily because competition for tenants at recently built properties is creating downward pressure on asking rates. Between the first and second quarters, the national average fell 2.6% to $1.12 per sf, its lowest level in more than four years, according to Marcus & Millichap.
Over the course of the year, the pace of move-ins has improved. New move-ins have been driven by the expansion of online rental platforms and remote access systems such as electronic locks that minimize personal interaction.
Both asking rent for new tenants and effective rent for existing occupants began to increase in July, reflecting an uptick in move-ins. However, the initial wave of federal unemployment benefits expired in July, which likely hurt the financial health of many self-storage renters and will place downward pressure on operations.
Yet Marcus & Millichap expects this negative impact to be offset by household consolidation and relocation. As more people move in with family or friends to reduce living expenses, the household consolidation should increase storage needs.
Other pandemic-motivated relocations may create demand as well. Months of sequestration are propelling some people to migrate to larger living spaces in lower-cost neighborhoods or metros. As changing residences is a major driver of self-storage use normally, this trend could bode well for storage properties in popular relocation destinations, including much of the Sunbelt.
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