Demand for self storage has been significantly impacted by diminished moving activity, which has fallen to its lowest level in more than 30 years. However, economic trends and favorable dynamics within the housing market should have a positive long-term impact on demand, according to an analysis of the asset class market by DXD Capital principal Cory Sylvester.
The demand for self storage is driven by several factors. About half of demand is linked to moving, while about one-third is due to space constraints. The remainder of self-storage demand is driven by various commercial and residential needs.
Moving activity has been impacted by rising interest rates that have led to decreased home affordability and a mortgage lock-in effect as more than half of mortgages were financed at below 4% while the prevailing rate has been closer to 7%. The recent slowdown in moving activity dragged total self-storage demand by 10%, Sylvester said.
Beginning last year, the pace of self-storage development began to decelerate. By mid-year, the number of new openings fell below half of what it had been on average over the past five years. “Many developers, facing these new economic realities, opted to sell permit-ready sites rather than move forward with construction,” said Sylvester. “The decline in development activity is also reflected in the data from Radius+, which saw a reduction in subscriptions among medium to large storage developers, indicating a significant retreat from the market.”
Despite impacts from slower moving activity, the self-storage market enjoys a healthy occupancy rate above 90%, according to Sylvester. He noted the decline in home sales has stabilized and sales ticked up in November. Historical trends indicate that home buying should increase from these levels and will be a tailwind for storage demand.
Other trends that bode well for self storage include smaller new homes. Since 2016, the size of new homes has decreased by 12%, and with smaller homes comes more demand for self storage.
In addition, a shift in preference toward renting as homebuying has been out of reach for many also should have positive implications for self storage. A record 36% of Americans say they prefer to rent, and renters generally have two to three times the propensity to use self storage than non-renters.