REAL ESTATE NEWS

PANDEMIC MIGRATION HEATS UP SELF-STORAGE MARKET

Published on Friday, January 14, 2022

As people fled to new cities during the pandemic, they kept their stuff in self storage facilities.

 

Self-storage followed the trajectory of many asset classes during the pandemic, according to Evan Hudson, a real estate partner at law firm Stroock & Stroock. At the beginning, it performed poorly, and then robustly. While a few factors contributed the strong performance, migration to new markets certainly helped.

“In the case of self-storage, the performance reflects fundamentals,” Hudson tells GlobeSt.com. “More people are moving, especially from dense urban cores to the periphery. As they move about, they need a place to stash their stuff.” Hudson adds that enhanced unemployment benefits and bond purchases by the Fed helped to increase the money supply, helping to drive the price of financial assets overall, although this was not unique to self storage.

Before the pandemic, self-storage was becoming oversupplied in select markets. However, construction activity waned during the pandemic, helping to offset construction concerns. Construction costs and challenges have also slowed construction activity, which has been a boon for existing owners. “the cost to develop new properties has increased, since contractors are dealing with the same supply chain problems as everyone else. “The cost to develop new properties has increased, since contractors are dealing with the same supply chain problems as everyone else. One silver lining to the supply chain disruptions is that your competitors are also having a harder time building new product. For that and other reasons, supply growth is slowing,” says Hudson.

Although people have reallocated themselves to new markets, the market characteristics for investment haven’t changed. “The strongest can be those with the highest density of renters, like urban areas,” says Hudson. “Big, densely populated cities and their environs are the place to be. Also, successful suburbs and exurbs, and, you suggested, new markets as people put down roots after having fled the pandemic. Higher average household incomes help too.”

While migration heated up the self-storage sector, Hudson says the market is poised for long-term growth. “I see continued strength, and continued development of higher-quality assets in prime locations,” he explains. “Ideally, demographic shifts and increased scale should be reflected in stock prices.”