The Rebuttal to Doomsday Storage Headlines

It is easy to see year-over-year numbers go down for self storage rental rates and have the urge to “blow the whistle,” but what most articles do not take into account is the underlying business model that has protected self storage for the past forty years:  rental rate increases for existing customers. 

This Yahoo Finance article cites storage rental rates falling from pandemic highs.  DXD has written extensively about why in blogs by both founders, Cory Sylvester and Drew Dolan - you can find them here.

When I read articles like the Yahoo one above, I’m struck by how much education needs to be done for the self storage investor during moments like this.  

The most important takeaway for investors is not what rates look like in advertisements, or “street rates,” but what “achieved rents” are at any given store.  Extra Space’s CEO, Joe Margolis said, "We maintained strong occupancy of 94.5%, driving same-store revenue growth of 2.7% in the quarter, despite exceptionally difficult year-over-year comparables from pandemic highs." 

Drew Dolan wrote an article recently about a shift in rate strategy at Extra Space, which acquired Life Storage in a $12.7 billion transaction in April. This article delves into just how existing tenant rent rate increases achieve greater revenue despite declining occupancy. 

The company has moved to aggressively slashing “street rates,” or advertised rates online and in-store, but has increased rents more aggressively once a tenant has moved in. When analyzing these advertised rates, this change at Extra Space, which now owns more facilities than any other company in the US (now over 3,500 stores) makes a difference. 

The second factor investors need to understand is how the slow down in housing transactions is having an effect on rental rates today.  Cory wrote this article about the housing market and self storage.  While transactions in single family housing have declined due to the run up in interest rates on mortgages, this demand does not go away, but becomes pent up, creating even greater opportunity for investment, which he analyzes further here. 

Overall, the self storage business model is resilient, something we’ve seen for decades.

Today’s market has challenges, as any market does, but doomsday headlines about rates dropping are much more complicated than a look at the advertised rental rates.