Economic Outlook: The Factors Driving Self Storage
Going into the third quarter of 2019, the demand for self storage rentals remains strong with positive demographic trends, low unemployment rates, and sustained economic growth all contributing to the current state of the industry. We see the development of new facilities mirroring state-to-state and county-to-country migration patterns. Millennials continue to drive demand for self storage as homeownership remains out of reach for many in this demographic. That said, oversaturation of primary and select secondary markets remains a hurdle for investors and marketers.
The biggest trend in state-to-state migration patterns is specific states trading people. California and Texas are among the states with both the highest in-migration and out-migration patterns, sending residents back and forth between the two highly populated states. California represents the highest percentage of residents moving to Texas and vice versa. Texas and Florida also show a similar pattern of trading residents.
On a county level, Los Angeles County, CA saw the highest influx of in-migration with 214,577 people moving from a different county within the past year. Maricopa County, AZ, and Harris County, TX, had the next highest in-migration flows. We also see five of the next six other counties with the highest in-migration flows are located in California and Texas — San Diego County, CA, Dallas County, TX, Riverside County, CA, Orange County, CA, and San Bernardino County, CA.
Los Angeles County also had the highest out-migration flow with 312,000 people moving to a different county within the past year. Cook County, IL, and Harris County, TX, had the next highest out-migration flows. San Diego County, Maricopa County, Dallas County, Orange County, among others also featured the highest out-migration flows.
Looking at the U.S. Census data, similar patterns arise with a constant flow of people moving to and from primary markets. Development of new self storage facilities reflect these migration patterns, while also representing oversaturation in primary markets.
Movement to Smaller, Tertiary Markets
Self storage developers look to smaller secondary and tertiary markets to counteract oversaturation in primary and large secondary markets. The viability of small secondary markets is considered if existing facilities are at a minimum of 90% full and there is little online presence or digital footprint for those existing facilities. The percentage of households renting a unit must also be greater than or equal to the national average of 9.5%.
Millennials continue to flock to secondary markets with healthy employment growth, such as Portland, Nashville, and Seattle. These markets continue to have the strongest development pipelines, according to a recent Yardi Matrix report. Performance is decelerating in oversaturated markets like Charleston, where the penetration level is about 45% higher than the traditional benchmark of 7 rentable square feet (NRSF) per capita.
Smaller secondary and tertiary markets often demand space for RV and boat storage, as well as larger drive-up units. The investment can easily outweigh the revenue benefits due to the need for larger units and great building costs. On the opposite end of the spectrum, these markets tend to have enough land available for this type of product. Construction in primary markets is almost exclusively multi-story buildings due to the scarcity of land and underlying land prices.
Self Storage Economic Outlook
State-to-state and county-to-county migration patterns continue to drive the need for self storage. Millennials are on the move and with homeownership out of reach for many individuals within this demographic, self storage demand remains strong. Moving forward, expect the flow to secondary markets to drive self storage development. Primary markets trading residents influences demand, while also threatening oversaturation.
Self storage customers have high expectations for relevant, immediate, hyper-personalized local information, which speaks to the value of having a location-specific digital strategy and online leasing.
Schedule a strategy session with G5 and learn more about location-specific digital marketing.