Self-Storage Properties, Often Cited as Slump-Resistant, Aren’t Immune to the Coronavirus
Customers Pull Back on Nonessential Spending as Economy Slows
The coronavirus pandemic is disproving a theory that the self-storage sector is inherently resistant to broader economic trends as stay-home orders and cutbacks on nonessential spending lead to fewer walk-in visits from prospective customers.
Three of the largest publicly traded U.S. self-storage providers — CubeSmart, Extra Space Storage and National Storage Affiliates Trust — all reported significant declines in their overall occupancy in April, according to their most recent earnings reports.
The results mark a reversal after self storage had grown as the economy surged over the past decade, with the industry providing a type of retail use for property often in industrial areas. Until the pandemic, its prospects were good because baby boomers are downsizing and the popularity of small urban apartments meant that storage was often needed for skis or other seasonal gear.
“Although self-storage has historically proven recession resistant, it is not recession proof,” Tamara D. Fischer, CEO of National Storage Affiliates Trust, said on the company’s most recent earnings call. “The stay-at-home orders and rapid job losses have weighed heavily on our move-in volume.”
Malvern, Pennsylvania-based CubeSmart, which owns more than 520 self-storage properties in 24 states, reported a 28% decline in its same store rentals in April compared to April 2019. And from mid-March to mid-April, Salt Lake City-based Extra Space Storage reported its rentals were down between 35% and 40% compared to the same time last year. Greenwood Village, Colorado-based National Storage Affiliates Trust reported a 22% decline in its rentals between mid-March through the end of April, compared to the same time last year.
Extra Space Storage owns or operates more than 1,800 properties in 40 states. National Storage Affiliates Trust owns or operates 780 self-storage properties in 35 states and Puerto Rico.
Those April declines seem to be the most severe plunges, though. In the latter half of April, Extra Space Storage reported improved rental velocity in 25 of its top 30 markets. And in the first week of May, CubeSmart’s rentals were down 12% compared to the same time last year, a significant improvement from the company’s 28% decline in April.
Though fundamentals seem to be improving, albeit very slowly, investment activity in the sector has eased up considerably, Fischer said in the company’s earnings call.
“The acquisition environment has slowed significantly with fewer deals in the market and frankly many buyers hitting the pause button for now,” Fischer said.
Deals are still getting done, though. In April, Chicago-based Harrison Street announced it sold 15 self-storage properties, including a 14-property portfolio composing 1.2 million square feet of space. The portfolio’s 8,069 units are primarily clustered in Florida, Georgia and South Carolina, according to a company statement.
Terms of the deal, including the addresses of the properties or the buyers, were not disclosed.
“Demand in the self-storage sector has always been driven by life events that don’t necessarily correlate to the broader economy,” Christopher Merrill, co-founder and CEO of Harrison Street, said in a statement announcing the deal.