For the first time in four years, all major and secondary metro markets saw street rates for self-storage units rise in April.
That’s according to a new industry report from Yardi Matrix that tracks storage rental prices across the country.
Year-over-year rates were up 8% for 10×10 non-climate-controlled units and up 9.5% for climate-controlled space. Month-to-month rates were respectively up 1.7% and 2.2% for the same categories, according to Yardi.
Cause and effect
The cause: Continuing strong demand for storage space in the wake of last year’s economic downturn caused by the COVID-19 crisis. As restrictions ease and people return to life as normal there appears to be a rush by many to put items in storage for safekeeping. The reopening also happens to coincide with the traditional spring rental season.
“There’s just tons and tons of demand out there,” says Chris Nebenzahl, editorial director at Yardi Matrix. “The demand for storage is high and it’s driving up rates.”
“It’s all tied to COVID-19,” Drew Dolan, a principle at storage investor DXD Capital, says of ongoing rate jumps across the country. “The market is strong.”
While recent rate increases have once again proven that self-storage is a largely recession-resistant industry, they’ve also defied some assumptions about market metrics – namely that areas considered oversaturated with self-storage facilities (or those with high penetration rates) shouldn’t be doing as well as others.
Hot down South
Take Charleston, South Carolina. It has the highest penetration rate in the nation, at about 11.5 square feet of storage space per capita, thanks to a recent self-storage building boom in the historically quaint Southern city.
Yet, Charleston saw the second highest year-over-year rate increases in the nation in April – 8% for non-climate-controlled units and 17% for climate-controlled units, according to Yardi Matrix data.
Rental gains strong in highly penetrated markets
Similar price oddities abound in Yardi’s recent monthly report.
Streets rates rose sharply in places like Denver, Houston and Austin, all of which have seen recent overbuilding and all three of which have among the highest penetration rates in the nation.
Meanwhile, New York and Philadelphia, which have the lowest penetration rates in the nation, saw strong, though only slightly above average, year-over-year rate increases of 9% in April, according to Yardi Matrix data.
So what’s going on?
Sean Delaney, a senior vice president of investment at Marcus & Millichap, says the numbers just go to prove that so-called penetration rates are “sort of a moving target” when it comes to their relevance in given markets.
Some markets may have indeed experienced overbuilding – thus driving up their penetration rates – but they keep attracting new residents that aren’t yet recorded in U.S. Census numbers, he said.
Digging down further
So maybe previously overbuilt areas aren’t quite as overbuilt as they statistically appear on paper, as measured by penetration rates.
DXD’s Dolan says it’s always important to dig down further into various numbers to get a full picture about what’s really going on in an individual market.
In the case of the Charleston area, it’s indeed seen impressive rate increases of late, but Charleston’s rates were relatively low to start with, hovering around $94 for non-controlled units, well below the national rate average of $122.
“There was room for rates to grow,” Dolan says of Charleston.
“It’s challenging sometimes to use metrics,” adds Dolan. “They can be misleading.”
As for use of penetration rates to measure metro markets, “it’s more of an interesting metrics as opposed to something that’s a deciding factor,” says Dolan. “Every market is different.”
The city of Nashville, for instance, fits the standard penetration-rate model. Nashville has recently seen solid new construction and its penetration rate of more than 9% is one of the highest in the nation as a result. Not surprisingly, it saw a year-over-year rate increase of only about 4% for climate-controlled units in April, the lowest in the nation.
But the city of Chicago’s metrics are all over the map in terms of trying to measure real or potential performance. Even though the Windy City area added more than 1.3 million square feet of supply in 2020, it’s still considered an undersupplied market with a penetration rate of only 5.1. Yet Chicago’s climate-controlled rates increased a solid 10% year-over-year in April, thanks to one “small competitive environment” that drove up rate averages, as Yardi Matrix reports
The top market in terms of year-over-year price increases? San Jose, where non-climate-controlled rates were up 13% and climate-control prices were up 18%, according to Yardi Matrix. That makes more sense in terms of the penetration-rate metric, for San Jose’s penetration rate is just under 5, among the lowest in the nation and less than half of Charleston’s rate.
The next nine months
No matter what the causes of recent price fluctuations in given markets, Yardi Matrix’s Nebenzahl said he sees overall rates nationwide continuing to increase over at least the next nine months – as long as unknown factors don’t intrude and disrupt projections.