Episode 246: Is SELF STORAGE Making a Big Comeback in 2025?

Announcer (00:03):

This is the Self Storage Podcast with the original Self storage expert, Scott Meyers.

Scott Meyers (00:11):

Hello everyone and welcome back to the Self Storage Podcast. I’m your host, Scott Meyers, and today I’m excited to drop in with a short but powerful episode on a topic. I’ve had a lot of questions about why self-storage is poised for a comeback in 2025. We’ve seen it, you may not be feeling it in your own market, but what you as an investor should be doing right now. Well, that’s what we’re going to be covering in the next 15 minutes or so. I’m going to walk you through the three key takeaways that I want you to write down, which is one where the market stands today, the reality behind the headlines. Data gathering partners, including our own staff, have put together some pretty interesting stats to see where we are as we head into Q4 for 2025. Number two, the top trends that you should be leveraging in your facility or in any acquisition right now, which is key to where we find ourselves in the market right now.

(00:58):

And then three, what you can do now, practical moves to position yourself for the rebound. You knew that was coming because we’re all about execution over here. And so yes, the last step is always what are we going to do right now? Alright, so let’s dive in. Let’s talk about the state of the market where we see it right now. And at the time this is airing. We are heading into November. So we are coming through the balance of a Q4 in 2025, but let’s tackle where the market is today in the US after the enormous boom during COVID. Yes, we are still talking about it because that’s kind of the benchmark where we’re starting to measure things from right now because it is a different era and COVID really changed any, any type of trending that we looked at in terms of our stats.

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So we slice and dice in lots of ways, but we get beyond COVID about a year end. And here’s where we kind of start the new norm, if you will. And since then things have normalized. As a matter of fact, they’re very static. For example, according to a recent C-B-R-E-C-B Richard Lewis report, by early 2024 vacancies in storage had climbed back above 8% and move-in rents fell about 15% from their peaks. Meanwhile, the national inventory has exceeded at 2 billion square feet. So in 2024 alone, see we’re not all the way through 2025 yet, but almost 63.6 million rentable square feet were completed representing roughly 3.3% of the existing stock. So that’s a pretty sizable amount. And so that’s important as we look to this year because what does it tell us? It tells us the free money era of 2020 to 2022 is over because that’s when the free money was available for these development projects that came online in 2024.

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Supply was very heavy at that time rates began to creep back, but crucially, many of the headwinds meaning high interest rates, less housing turnover, those were starting to give way. So for instance, CRE daily reports that in April of 2025 rents declined, just 0.4% year over year while month over month they rose 0.7% across 27 of the top 30 US metros. So in short, the sector is stabilizing, it’s not collapsing. And now we’re going to move on to the trends that are setting up for the next leg. So key trends to capitalize on now as we’re focusing. Well trend number one, and we’ve been beating that drum of the podcast so over here as well as that our academy and our mastermind is both technology and customer experience technology, not at the expense of the customer experience. So at tenant expect ease of access. Now, online rentals, smart gates, mobile apps, the list goes on and on.

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In the recent tenant insights that report from Storable, they found that a 43% of Americans are considering a move in the next year, which is also a big demand driver. So now we focus on and trend number two, sustainability and efficiency operators are now cutting costs and differentiating. So LED lighting has been around for a while. We’ve seen a high efficiency HVAC systems, even green certifications. And so we’re seeing, and we’re doing this in some of our locations as well, we’re not just waiting for these units, the HVAC units to expire. We are now stepping in and making these proactive changes because they become so efficient compared to some of the older equipment that it just makes sense to do so now. And then getting the green certifications all the way up to LEED certifications in some of our facilities in which we’re bringing online and from the design, from a design perspective as well.

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And according to a one industry outlook of this is becoming a competitive edge for self storage. And we are seeing that in our space right now. And we’ve even seen that within our capital races that many of our folks that are coming alongside of us as limited partners. A big piece of that is not only our track record, our history, our record of integrity, strong returns, but now they’re seeing that the initiatives that were taking place from energy certification and energy conservation standpoint, our hot points, hot buttons for our investors as well. And so it truly is becoming a competitive edge. And then trend number three, the demand drivers and selectivity in markets. And now we get to the nitty gritty and while housing turnover is still lower than the boom years, mobility is rising. And so we continue to track and follow where people are moving.

(05:08):

And so we have seen people that have moved to the smile states or the Sunbelt states during COVID because their employers allowed ’em to work from home so they could go anywhere. And the same report estimated that about 25% of Americans say they plan to move in the next six to 12 months. So what it really hasn’t stopped since COVID, also occupancy levels nationally remain strong. One data source puts an average occupancy in our industry at 85.1% as of July of 2024. So is that an older stat? No, because we have so many units that are coming online and we’re not done with the balance of a 2025 to look at this on an annual basis and perhaps most important supply moderation, which is helping that number and the reasons why I believe 26 is going to be stronger, which we’ll talk about in a minute.

(05:50):

The development pipeline has been easing ER matrix reports that under construction projects represent just 2.7% of inventory in August of 2025 down from much higher levels. And so what does all this mean for you as an investor? It means that you’re entering a market where demand is rebounding, supply is slowing, and differentiation matters. That’s the bottom line. And so how should you approach this? How does the smart investor approach it now? Well, I’ll take a page out of our book and tell you what we’re doing and here are the four actionable moves you should consider. And if you think that I’m just talking about this, then well just watch us. You’re going to see these moves already playing out some, and then you’re going to see the rest of these through the balance of the year this year and next year as well. So it’s one thing for us once again for you to be a part of what we’re doing in our academies and our masterminds and listen to these podcasts.

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It’s another thing to see it in action and then see it how it actually plays out real time. So move number one is we are doing serious pipeline due diligence. Don’t know just your properties submarket, but what’s being built nearby and how many new units are coming. And that is both your competition as well as new housing units with supply moderation starting to take hold properties in better supply constrained markets are always going to outperform. And so this means constant monitoring. And the good news is most of this can be done online and utilizing AI to be able to scrub the local municipality’s data for zoning and construction to find out what is coming online. But then don’t forget to pick up the phone as well as calling them to find out what is coming down the pike. Number two, integrate technology and sustainability from day one.

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It shouldn’t just be a thing. Conscious capitalism is real when it comes to sustainability. It is a real thing. And same with technology, but you can’t just talk about it. You have to do it. If you can build a retrofit of facility with mobile check-in, if there’s anybody out there who is not doing that yet with remote monitoring, strong climate control, you’re going to appeal to tenants and command premium rates in addition to the fact that you’re going to be cutting costs. Because if you’re not doing it with technology, then you’re doing it with people in payroll and that is not good for the bottom line in your NOI move. Number three, expand your use case beyond purely individual tenant storage. Think business storage, climate controlled units, flex space, short-term rentals. The demand drivers are diversifying. We are, if you paid attention to any of our capital races recently, we’re moving into pro storage, storage, condos, another way of packaging up and marketing, but truly meeting the needs of our consumers today, which are looking for small offices with warehouses behind it for a small business.

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And so we’re beginning to build these just to meet that demand. We’re building these parks that are built of storage units, professional storage units that are condos similar to the man case that we’ve seen in the past, but then we’re selling those units off and keeping the association like much like a homeowner’s association and or leasing a number of those as well, depending upon the mix. So thinking long-term instead of just raising capital, building a facility, stabilizing it, and then exiting Now we are in for the longer haul, but also bringing to market these different types of units well that the economies and our clients are looking for and move forward. Number four is to act now, as we’ve always said, taking bold, making bold decisions and moving. Now instead of sitting on the sidelines, you talk to any successful self-storage investor or anybody professional that has been in the industry for a number of years.

(09:19):

The greatest regret, the greatest mistake that they’ve made if they look back in their career is that they didn’t start sooner. So before the next leg of growth becomes obvious, which it already is to us, often these markets rebound before anybody realizes it. As an example, one blog notes occupancy above 90% gives a pricing power to those markets. And I’ll give you a hint as to whose blog that is. So go read it yourself. The case study is there with all the stats as you can imagine, to back that up. So to illustrate, for example, imagine acquiring a facility today at 85% occupancy, then executing operational improvements, doing the tech upgrades and marketing. So you hit 90% plus in 12 to 18 months, which is not a heavy lift with limited new supply. You’re well positioned to grow NOI when the broader cycle turns. And that’s all we’re talking about right now is really just doing those things, buying the value add facilities.

(10:07):

And value add now is our focus is really on the operational side. It always has been, but there’s a number of different ways to be able to move that needle. And it truly is just operationally. And again, with the onset of ai, we’re noticing the early adopters, the folks that are coming in and implementing not only technology, but to also AI at every turn within the business. Those are the folks, the early movers, those are the ones who are going to make some big moves and some big strides within the next 12 to 18 months in addition to seeing a market turnaround. And remember, as always, location still matter. So while metros have the most visibility, the secondary and tertiary markets offer better risk adjusted returns. At least what we’ve always found, even if supply is limited and demand of fundamentals remain strong. So let’s wrap this up.

(10:54):

Here’s the key takeaways. The way I see it, the market is stabilizing. It’s not collapsing. Vacancies in the US are in the eight to 10% range rates are flat to slightly up in many markets. So we’ve hit the bottom. We’re on the upward swing right now. The next wave of value is going to be created by operators who embrace the tech sustainability and targeted tenant demand. And again, if you move now, you can position yourself ahead of the crowd. And smart investors, we’ll always do that. So thanks for tuning into this special episode. Check out our website for the show notes and links to the data I reference. And in the next episode, we’ll bring you a guest interview that will dive deep into portfolio of storage acquisitions in mid markets. You’re not going to want to miss it. Until then, I am a Scott Meyers. Happy investing. We’ll see you next time.

Announcer (11:40):

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