Established self-storage facilities across the country are starting to see revenues stabilize—two months after the coronavirus crisis shut down the nation’s economy this spring. But it may take new lease-up facilities a while longer before prices return to normal, according to a new report by Cushman & Wakefield.

The report by Cushman & Wakefield paints a picture of a self-storage industry that endured a severe short-term shock in the weeks following the rolling economic lockdowns across the county, as officials tried to stem the spread of the coronavirus via stay-at-home orders issued by state governors.

The COVID-19 crisis also hit at a time when new supply of developed self-storage units have been elevated in markets around the county, creating an even more volatile environment for operators with self-storage properties in the lease up phase.

‘A double whammy’

Industry wide, same-store self-storage revenues were down 3% in April, a significant decline. Same-store revenues are already showing signs of stabilizing in May, with revenues either flat or down only 1%, according to the study and data provided by Mike Mele, vice chairman at C&W and head of the firm’s national self-storage group.

“It was a double whammy,” Mele told the SpareFoot Storage Beat, referring to increased supplies and the coronavirus hitting at the same time.

Fortunately for established self-storage units, move-ins and move-outs held relatively steady during the spring, helping to stabilize the market, according to Cushman & Wakefield.

But matters were different for newer facilities that have only recently come online across the country, with rental prices down 20 percent or more this spring, thanks largely to national real estate investment trusts (REITs) that aggressively slashed street prices in order to fill newer facilities and gain market share, according to Cushman & Wakefield.

Bouncing back slowly

As a result of those steep price declines, it may take longer, perhaps until the end of 2021, for street prices to recover for many facilities. Industry NOI is expected to be flat to negative for the rest of 2020.

And if street prices for newer facilities remain down or sluggish, it may further curtail new self-storage construction, which was already experiencing a slight decrease last year and in the months leading up to the early-spring COVID-19 crisis, according to the report and Mele.

Lenders will probably remain “leery” of new construction as a result, though Mele emphasized that the acquisition market seems to be bouncing back. Heading into the spring, Cushman & Wakefield had 16 acquisition deals under contract – with eight of them ultimately closing, two going forward more slowly and six falling apart.

But acquisition talks are starting to resume – and now some pre-COVID-19 deals are starting to get “stitched together again,” he said.

“There are still buyers out there and some of the (investment) money is shifting” toward acquisitions of existing profitable facilities, he said.

The bottom line, according to the C&W study and Mele, is that the self-storage market, when older and newer facilities are considered as a whole, is once again proving it’s an overall resilient and lower-risk commercial real estate class that’s many investors find attractive.

“It’s going to be fine,” he said of the self-storage market in general. “I’m definitely optimistic.”

Commercial lenders start to recover

Marc Boorstein, a principal at MJ Partners Self-Storage Group, agreed that self-storage generally took a sharp hit this past spring, causing severe price pressures in some markets. But he said delinquency rates didn’t rise much on the whole, while move-in and move-out rates remained relatively steady.

And Boorstein said, like Mele, that he’s also seeing a surprisingly fast recovery in investor interest in self-storage, with a “re-emerging” commercial mortgage backed securities market for acquisitions.

As for self-storage development, it may take more time for the new-construction subsector to bounce back. Still, the quickly recovering CBMS market is a “good sign” for construction moving forward, he said.

Jay Fitzgerald