Aaron Swerdlin, Co-Head, Self Storage
The strength and durability of the self storage industry have been affirmed throughout the pandemic cycle. Not only has unprecedented levels of capital flowed into the sector leading to all-time record high transaction volume; but the underlying operational performance has been stronger than any other property sector in the REIT universe. Core capital tends to be heavily focused on quantitative risk and data-driven analysis; and the self storage industry is notoriously a sector lacking macro and micro synthesized data. The lack of standardized, comparable industry data related to rental rates, occupancy and supply saturation (both on a current and a historical basis), has been an impediment to meaningful allocations of core capital to the sector. However, the sector’s performance throughout multiple economic contractions and expansions has validated its resistance to broader economic slowdowns as well as self storage’s ability to quickly capture revenue upside from economic growth. Despite only incremental improvements with industry datasets, the industry began to see noticeable inflows of core capital around 2018, evidenced by accelerated compression of return targets. The industry’s fortitude, proven once again by its durability through the COVID pandemic, has led not only to large increases in allocations to the sector, but a majority of this expanded pool of capital is targeting returns at levels more in line with other fully validated sectors such as multifamily housing and core industrial; which has further compressed overall cap rates for self storage assets.
The self storage sector enters 2022 at near-full occupancy. This high level of demand continues to place pricing power with operators and sets up another exceedingly strong year for the industry. Our belief is that revenue growth, rental rates and transaction volume will continue to outperform the long-term average of the industry. The positive bias for self storage among the capital deployers will continue to put pressure on cap rates. And the operating performance will validate the expanding allocations. Some concern exists surrounding expectations for rates of revenue growth. There is little doubt that the industry will perform at absolute levels exceeding most other product types; however, as we get deeper into 2022, the year-over-year comparisons become more difficult to replicate. If expectations remain bound to absolute performance, sentiment towards the sector will remain extremely high. However, if expectations are bound to the rate of year-over-year growth, some deceleration in that growth rate is possible and that could artificially stunt enthusiasm. With the strong comps ahead next year, especially 2Q22 and 3Q22, being mindful of absolute growth and how it compares to the broader REIT universe is a productive focus for contextualizing the self storage industry’s outperformance. In our view, a reasonable level of new supply is the appropriate fulcrum to influence sentiment.
2020 and 2021 have been remarkable years for the industry and our view is that self storage will continue its leading performance. We look forward to hosting four of our Forum series events in 2022, as well as a return to an in-person Self Storage Investor Symposium (more details to come in this regard).
Below you will find our YTD21 Quarterly REIT Reports as well as a collection of the summaries from each of our Forum series webinars dating back to April-2020.
We could not be more proud to be in such a resilient industry and look forward to our interactions in 2022 and beyond.
