The year we just ended was complicated and challenging for the entire society, people and businesses alike. Some sectors of the economy were more affected by the pandemic than others, particularly those in hospitality, tourism, and other service industries. Real estate, on the other hand, managed to navigate last year better than most economic sectors, with self storage emerging as one of the most resilient industries in the real estate world.
After an initial shock that occurred in the spring and summer of 2020, when self storage rates fell – the most dramatic drop in rates being 4.3% year-over-year in both May and June 2020, according to Yardi Matrix – the deceleration stabilized, and the self storage sector ended the year on an upward trend.
The December average street rate for a 10×10, non-CC self storage unit grew 1.7% year over year at a national level, to $117, once again proving the resilience on the sector in the face of economic challenges. New construction also held up well, with the monthly new supply expressed as a percentage of existing inventory remaining in the 8% to 9% interval throughout the entire year of 2020.
To learn more about how things look from the perspective of industry professionals, we talked to Marc Goodin, president of Storage Authority LLC, who has 25 years of experience in the self storage sector. Beside owning and managing storage facilities, this Sarasota, Florida company also helps develop facilities throughout the country, in a franchise system.
Storage Authority is the only self storage franchise in the US. The company helps its franchisees save time, reduce their risks, and make larger profits than they could on their own. For ground-up projects, Storage Authority guides them through the development process of finding land, project design, project approvals and construction. Once open, the company’s operations, sales, and marketing systems help make premiere facilities for higher profits.
What is the self storage picture these days, and what are the challenges it is facing?
Self storage done properly is doing fantastic. The old days of “build and they will come” are long gone. Now, you must build in the right location, provide over the top service and market the facility. Existing premium self storages over 50,000 square feet are selling for very high prices (very low cap rates), making it difficult for most investors to purchase. If a developer is willing to do the work to build and fill a facility it can be very lucrative and require half the cash equity to obtain a loan.
How was business for you in 2020? Did you notice a contraction of the industry due to the pandemic?
It was a great year for us. Self storage is an essential business so were never required to close. One of self storage major users are people moving and people continued to move in 2020 due to low-interest rates and for work. Also, more people than usual were moving to be close to family, maybe due to COVID-19. Less new self storage is being built so that is great for existing facilities and new facilities.
What are your expectations for 2021?
We expect 2021 to be the best year we have ever had because it is one of the best times ever to build and own self storage. We expect the same if not more people to move in 2021 than in the past given the “work at home” options. We see rental rates increasing in 2021 for those premier facilities that understand marketing and remarkable customer service due to the increase in demand. And, since there is less commercial development being built, we are seeing better land prices.
What, in your experience, are the most important extra services to offer to self storage customers?
In our experience, there are two critical parts of the renter’s experience. 50% is environmental and 50% is the service. So, first the facility and website, that must be easy to find and access, look great, and feel great from the renter’s point of view. Our recommendation for services in 2021 is improving your drive-by view, dressing up your office, and training your managers better.
You might not consider those services, but I bet your renters do. Self storage is how you make your profits and most other services like truck rentals can distract from your real business. Of course, every office should have a large display of locks and boxes and other packing supplies.
What special offers and discounts have you found to be most effective for attracting customers?
Other than “grand opening” periods, we do not believe that providing specials or discounts are a smart marketing option. In fact, low price is the worst selling feature.
Have customers changed their self storage habits as a result of COVID?
More and more renters are doing contactless rentals, so it is important to have a good website that provides for online rentals and payments. Managers must have a good phone script that includes asking every phone prospect to rent over the phone. Along the same lines, more people are renting at kiosks, even when the manager is in the office.
When it comes to customers visiting their units, COVID-19 has not changed users’ habits much. Some lock up their stuff and visit weekly, others almost never visit their unit.
How has COVID-19 changed the way in which self storage owners operate their facilities?
We do a lot of the standard precautions like cleaning and disinfecting. We have separated the managers and renters with clear plastic screens and often added an extra table for further separation. Part because of COVID-19 and part due to changing standards, we now email renters the lease and receipts vs hard copies.
Of course, our marketing includes contactless rental and payment options. Auto payment is promoted more and is on the rise, which saves the managers’ time from calling late people and actually increases profits. Renters on auto pay stay a couple of months longer.
Do you see interest from potential investors in the self storage industry?
Yes, there continues to be interest in investing in self storage. Self storage does not have a lot of employees and headaches such as late night calls to fix broken toilets, like it’s the case with other real estate investments. It appears with the just passed COVID-19 relief package that certain SBA fees and payments are going to be waived for several months, so an SBA loan will be even more affordable. The cash equity for a $5M loan will be in the $500K to $750K range making self storage investing more affordable than ever.
How do you envision the future of the self storage industry, in the medium- and long-term?
I see self storage ownership for both the short- and long-term future being excellent. Of course, like any investment, the proper due diligence, operations and marketing must be done for a premier business. There are always going to be great deals and bad deals in any industry.
Marc Goodin is President of Storage Authority LLC. He owns 3 self storages he designed, built and manages. He can be reached at [email protected] or directly at 860-830-6764 to answer your self storage franchise, development, marketing, sales and operational questions.