Despite most self-storage properties being fully occupied, national average self-storage rents are falling due to many landlords needing to cut rents in an effort to keep their tenants as newer properties open nearby. Developers continue to draw plans to bring more properties to the market across the country, putting even greater pressure on self-storage rents as new buildings lease up. However, self-storage properties overall still record high occupancies as demand for self-storage space continues to grow, particularly in secondary markets with robust employment growth and high population gains.
According to the National Real Estate Investor, units under construction and in the planning stages would add up to a 9.7 percent increase nationwide in the existing inventory once they open. While the amount of new construction is high but not overwhelming, competition from new properties still hurts older assets in close proximity.
Many properties have aggressively cut rents to remain full occupied. According to a report from Yardi Matrix, street-rate rents across the U.S. declined by 4.1 percent in November 2018 compared to the year before for 10-by-10-foot, non-climate-controlled storage units and by 2.2 percent for 10-by-10-foot climate-controlled units. Rents fell by more than 5 percent on average over the last year in cities including Portland, Ore. and Nashville, Tenn., where developers are planning to increase the inventory of self-storage properties by more than 20 percent. However, even in these overbuilt cities not every self-storage property will be challenged.
To find these pockets of strong demand with little new construction, developers are looking for sites in secondary markets, as well as in large gateway markets like New York and Boston. “Demand is still elevated in historically underpenetrated markets with large urban clusters, such as Boston and New York City,” according to Yardi Matrix.