Self Storage to Rebound in 2024?

In 2023, many industry analysts stated that self-storage growth rates returned to pre-pandemic levels. While the industry as a whole grew, it was not at the rate experienced during the pandemic years, suggesting a return to the pre-pandemic state. But what factors have led to this, and what is the future for self-storage in 2024?

The Perfect Storm

1) Interest rates – Since March 2022, the Federal government has raised interest rates ten times to combat inflation. Rates climbed from 3% to over 7% during this period. As a result, new construction has subsided proportionately, slowing overall industry growth.

2) New Construction – In addition to the slower new construction growth, home construction has also slowed. Adding to this fact, the rapid rise in house prices, brought on by inflation, halted home sales nationwide. Home inventory decreased for the first time in years simply because buyers did not want to pay inflated prices at increased interest rates.


The Horizon

While 2023 may have been a reset year for self-storage, there are many positive indicators for 2024.

1) Lowering interest rates – the Fed announced a probable interest cut in March of this year with the rumored news of at least three cuts over the year. Redfin also predicts interest rates will continue to fall throughout 2024 and are at their lowest since May 2023. The article Housing Market Update: Mortgage Rates and Housing Payments Drop to Lowest Level Since Spring (redfin.com) states that a mid-6 % range is realistic in 2024. If accurate, this is a great indicator that paused construction jobs may move forward again in 2024 and allow self-storage to return to healthier (although not Covid-like) rates. In fact, mortgage rates have been dropping for the past nine consecutive weeks, and this trend is expected to continue.

2)  Home inventory levels – Home inventory is predicted to start increasing after month-over-month drops in inventory. Perhaps a signal that home sellers are getting back into the market? The aforementioned Redfin article says that mortgage purchase applications are up 19% since early November. Sellers are also getting back into the game since US home prices rose 4.5% year over year, which was the most significant increase since October 2022, and new listings are up 8% year over year.

For the Operator

While vacancies increased generally and rates declined, a return to home buyer transactions may once again call for increased self-storage facility use. Some have said that this factor alone drives 20-25% of all self-storage revenues, so a lower interest rate may directly impact this factor.  

A lower interest rate may also equal more new construction and competition. Older properties must determine if they can afford not to modernize their facilities to better align with the next generation of smartphone-carrying renters who expect a touchless experience.
 

What is Expected in 2024

With the interest rate expected to decrease several times next year, consumers will again have greater discretionary spending power. This would allow for more home purchases as mortgage rates fall and extra capital to spend on goods. If rates drop and construction resumes, self-storage operators can expect an increase in unit demand and a decrease in vacancies. The additional revenues will help to modernize older facilities as they try to keep up with newer facilities that should come online when the new construction resumes.

Media Contacts:
Steve Reeder – sreeder@ptisecurity.com
Liv Leonard – lleonard@ptisecurity.com

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