Self Storage Remains Recession Resistant During the Coronavirus Pandemic
The self-storage industry remains recession-resistant despite the residual effects of coronavirus. Even with the economy in a downturn, the industry is holding its own and operators and investors are projected to benefit in the coming months.
According to the U.S. Small Business Administration, during the 2008 – 2010 recession, almost 1.4 million small businesses closed their doors. Nevertheless, in the real estate sector, self storage did well due to its recession resistant nature. While the National Association of Real Estate Investment Trusts “All Equity Index” showed a 40 percent loss across all sectors in 2008, self storage REITs had a 5 percent return, including dividends.
There is widespread concern that the economic byproduct of this virus might topple us into recession, not unlike 2008. Despite this, the self-storage industry is in a favorable position. Operations have remained stable, if not a little bit up during this uncertainty.
The National Association of Real Estate Investment Trusts recently noted that REITs that specialize in self storage fell only 11.11 percent from the beginning of the year through April, in comparison to the Dow Jones Industrial Average that fell 16.96 percent.
Why Self Storage Remains Recession Resistant
“Storage is precipitated by lifestyle events,” says Steven D. Weinstock, a First Vice President and National Director of Marcus & Millichap. Because millions of people have filed for unemployment and college students have had to pack up their dorm rooms, the demand for self storage was higher than usual in March, even as much of the economy was shut down. April move-ins have been a little slow but there has been a simultaneous slow down in move-outs.This results in higher occupancy levels.
Nick Walker, Executive Vice President at CBRE states, “When the dust settles on the crisis and we look back, I expect self storage to again be one of the best performing asset classes.” Demand for self storage has been strong because the economic chaos caused by the pandemic has generated new tenants.
The coronavirus is creating the same consequences on real estate performance that we see in markets during any recession: downsizing, divorce, relocation, and death. As regretful as some of these things are, the self-storage industry provides people with a practical option during uncertain times.
There are already 26 million people on unemployment. According to Fortune, “The U.S. labor market, while showing some signs of bouncing back from the coronavirus shock, is still in a pretty dire spot.” As people continue to experience job loss, households will consolidate. When people move in with family, they need a place to store their belongings.
Another unfortunate result of this crisis is that many small businesses may have to move or close, triggering the need to store equipment, inventory, and supplies until they get back on their feet.
When people can’t afford to maintain their lifestyle or their business, they need alternatives. They don’t want to discard their possessions just because they have to relocate and/or move into a smaller space, and self storage gives them the time they need to formulate a new plan.
More Good News
There are further benefits to existing self-storage facilities. Projects in the planning stages will be delayed because city officials aren’t meeting and approving proposals, and projects under construction are facing setbacks, which will slow completion. This gives currently operating properties the advantage of a less competitive environment.
One final thought to surviving this pandemic. Moving forward you need to have a safe, rational plan to protect your customers and your employees that balances safety concerns with the understanding that people have different attitudes about certain restrictions. Meet the challenge head on with exceptional customer service, and concern for everyone’s perspective.