After a phenomenal run over the last few years, it appears the self-storage industry may be running out of steam for now.
Public Storage, the industry’s largest player and a bellwether for the sector at large, saw revenue growth decelerate more than 40 percent during the first half of the year, compared to 2016.
During the second quarter, same-store revenue grew 3.3 percent over the previous period. In 2016, Public Storage grew revenue 6 percent during the quarter. Same-store net operating income growth fell from 6.6 percent during the second quarter of 2016 to 2.6 percent in the second quarter of this year.
“Certainly new supply is having an impact but I think a bigger impact on the numbers is the comps that everyone is coming off from 2015 and 2016,” said CEO Ron Havner during its quarterly call with industry analysts.
Then and now
Havner noted that this time last year the industry was still experiencing peak occupancy and operators’ promotional discounts and advertising expenses were nominal. Move forward today and rental rates for new customers have fallen.
“Rental growth today is for the most part what your rental rate increases are for your existing customers,” Havner said.
Havner said Public Storage will be offering more promotional discounts and spending more on advertising to attract more customers. The company plans to lower rental rates in its weakest markets, Houston and Atlanta among them, as much as 15 to 20 percent going forward in an effort to increase move-in volume
The storage business is poised to get even tougher in the months to come, as Havner estimates that deliveries of new self-storage space won’t peak until 2018—with up to 800 new facilities opening their doors nationwide. That would be about a 20 percent increase over new facilities opening in 2017.
“Then you are going to have a year or two of absorption from that,” Havner said.