How Storage is Weathering the Pandemic and Recession
Self storage proved itself to be recession-proof during the financial crisis of 2008. Now the question is whether it can fare equally well during a pandemic.
May would have typically been the middle of prime leasing season as families tackle spring cleaning, purchase and store recreational equipment for the summer, and college students stash refrigerators and furniture until next semester.
This year is quite different for the industry. Despite remaining open during stay-at-home orders across the country in April and May, self storage experienced fall out, according the Yardi Matrix.
On a year-over-year basis, national street rates contracted by 4.3% for 10x10 non-climate-controlled units, while nationwide street rates for 10x10 climate-controlled units dropped 6.7% on an annual basis. On a month-over-month basis in May, national street rates dropped by 0.9% for 10x10 units without climate control and by 0.8% for 10x10 units with climate control.
Despite the drop, Yardi Matrix Vice President Jeff Adler said self storage has proved more resilient than other asset classes through the pandemic. Senior living, office, retail and multi-family have experienced greater drops through the sharp, deep downturn.
Record unemployment and unknowns about the ongoing spread of the virus and what the fall holds for the greater economy may mean more challenges could be ahead.
“The shock is over, but the pain has just started,” Adler said during a recent SSA webinar.
An overall dampening of demand can be seen already in Google searches for self storage, which are down 6%, said Chris Nebenzahl, Yardi’s institutional research manager.
While overall searches are down, the coronavirus has accelerated the digital shift to more self storage business happening online. Internet rentals have seen tremendous growth as a no-contact way to rent a storage unit while staying socially distant.
Digital firm G5 saw dramatic increase in usage in its online leasing product, called Uber Leasing, as the pandemic struck. Growth of the product was moderate at 1.71% from January to February. But from February to March, when colleges sent students home and businesses sent employees home, use of Uber Leasing spiked 39.2%. During March to April, when many states were under stay-at-home orders, new leasing on Uber Leasing fell 1.46%. In April to May, as many states began to relax restrictions, Uber Leasing rose 29.13%.
A number of storage companies have launched online rentals in the pandemic, including Pogoda Companies, CubeSmart, Simply Self Storage, Self Storage Plus and Store Space Self Storage. OpenTech Alliance offered free online rental software for its INSOMNIAC customers.
Likewise, storage operators have offered increase pay to workers who continued to keep storage businesses open during stay at home orders. Public Storage paid location managers an additional $3 per hour with enhanced paid time off.
Still, the ongoing economic fallout from the pandemic is likely to impact storage operations if it hasn’t already.
Patrick Reilly, president and CEO of Urban Self Storage, said that 25% of self storage customers are small businesses. The government’s PPP program likely helped forestall some immediate self storage delinquencies as small businesses received an infusion of cash to help them retain employees and pay rent and utilities. But the PPP, like enhanced unemployment benefits, are soon to end.
“In the near term, we are going to see vacancies as a result of this stimulus running out,” Reilly said in an online forum hosted by Marcus & Millichap.
Ken Nitzberg, chairman and CEO of Devon Self Storage, said with 41 million Americans out of work, self storage should expect some customers to encounter difficulties paying their rent.
“I’d encourage operators to work with those people,” Nitzberg said. "It’s cheaper to keep them and work with them than to go get more customers now. If this continues six months and we have a second wave, all bets are off. We are not an essential need product for most of our tenants. Our number one competitor is the dumpster.”