Commodity Pricing Confirms Low Supply Environment

This article in the WSJ points to a serious decline in home construction starts that have tanked lumber prices. I believe it will be the first of many articles like this as new supply declines for residential and most other product types, including self storage.

While we do not use lumber in our construction (it’s mainly concrete and steel), the lack of activity is beginning to affect both commodities and the construction industry. As work dries up for general contractors and their subs, we should start to see a softening in construction pricing. The cost of labor will remain, but the profit margins will shrink. We have already seen this occur in one market where we are building, and we predict this may be the start of a trend.

Building permits for new residential units fell in May to their lowest level since June 2020

Falling supply is the best thing to occur for investors in the self storage industry because it is prone to oversupply in each real estate cycle.

We say it a lot these days:  Only the best projects will be built in today’s environment. These projects will open into lower supply times, which we expect will drive rents—and investor returns—higher.