Self storage is known to perform well when the economy falters but even better when the economy is strong. Economic news has been trending mostly positive in recent weeks, leading self storage operators to remain optimistic about the year ahead.
Among the latest news:
- The number of Americans filing initial unemployment claims tumbled to 199,000 just before Thanksgiving, the lowest level since 1969.
- Federal Reserve Chairman Jerome Powell expects GDP at 5% this year, the highest since Ronald Reagan was president in 1984.
- A robust jobs number in October of 531,000 new jobs was followed in November with more disappointing results, with just 210,000 new jobs. But even with those numbers, the unemployment rate has dropped from 6.7% last December to 4.2% in December 2021. The number of people working in November was up by 1.1 million.
“Our business is performing as well as it ever has,” said Adam Pogoda, director of acquisitions for Pogoda Companies, Michigan’s largest independent self storage owner, broker and management company. “Occupancies are at record highs, which has translated to rate growth as well.”
Good news for a labor market recovering from mass layoffs in 2020 comes as businesses worry about rising inflation. Prices for personal consumption expenditures, including food and energy, increased 4.1% in October, according to the Commerce Department. Wages are also on the upswing, rising 4.9% year over year in October.
Wages have risen “more so than any other year I’ve experienced,” said Jefferson Shreve, owner and president of Bloomington, Indiana-based Storage Express. Shreve said his business increased starting rates for new employees and adjusted pay for existing hourly employees to maintain parity.
Storage Star, which operates in western states, Rocky Mountains and Texas, provided year-end raises up to 10% for onsite employees, said Matt Garibaldi, president of Storage Star and parent company FollettUSA. Storage Star employees were already well above the current minimum wage, so hourly wages have increased minimally.
“Our goal is to pay employees a livable wage and teach life skills for our employees to succeed at Storage Star or any business,” Garibaldi said. “As a result, we have been less affected than what many hear about in the news.”
Storage operators with open positions face fierce competition. The labor force participation rate — a measure of those working or seeking work — is about 3 million people fewer than were working just ahead of the pandemic. A record 4.4 million people left their jobs in September, though another 6.5 million were hired the same month.
“We had a couple periods during the last 18 months where it was difficult to hire, but since August we haven’t really had any issues,” Pogoda said.
Much of the narrative around The Great Resignation has been about burned-out employees or those demanding higher wages or better working conditions. Labor Department data shows that the decline in the labor force participation rate is being fed mostly by married people living with a spouse who left the labor force in late summer of 2020, leading economists to believe those workers will eventually return.
Operators said strong move-ins driven by the pandemic have slowed but occupancy remains high and business fundamentals remain solid.
“Occupancies and rent growth have been strong in most markets we operate, which has translated to strong revenue growth,” Garibaldi said. “Strong performance is a double-edged sword. It has attracted substantial capital and new entrants into our industry, which has pushed up pricing of new acquisitions to levels that oftentimes leave us scratching our heads. So, while revenue growth has been somewhat attractive, we are finding fewer acquisition opportunities worthy of our investors’ precious capital.”
Shreve said inflationary pressures in the broader economy will affect storage.
“The reality is that this growth will put inflationary pressure on most everything,” Shreve said. “Thankfully, we operate in a month-to-month pricing arena.”