SSA Blog

This is the second in our series of articles reviewing the results of the SSA Industry Confidence Survey, conducted in May 2024 with self storage owners and managers. In our first article, we examined how specific measures of confidence changed or remained the same since the study was previously conducted in 2020. In this article, we will take a closer look at regional variations in confidence measures. We’ll focus specifically on five geographic regions that encompass the entire US – Northeast, Midwest, Southeast, Midwest, Southwest, and West. Although a somewhat broad brush, the study nevertheless reveals a number of informative regional variations.

All Regions Optimistic Overall – But Somewhat Less So in West Coast

More than 8 out of 10 owners and managers expect the industry to remain stable or improve in the upcoming year in four out of five regions. The single exception is the West Coast, where about three-fourths are bullish on the industry. While still a significant majority, it is less so than other regions. This seems somewhat surprising, given continued strong regional economic growth (4), in-migration from the Northeast and Midwest (2), and a strong housing market (4). Self storage facility construction has been robust and profitability strong in recent years (5). Nevertheless, operators’ expectations may be tempered by regionally higher-than-average energy costs and continued high inflation, as well as higher interest rates that particularly impact housing affordability (4).

Expectations for Continued Strong Demand are Highest in The Northeast

Nearly nine out ten operators (87.8%) in the Northeast expect long-term demand for self storage to remain the same or increase over the next year. Those in other regions are also optimistic, with about eight in ten expecting steady or increasing demand. Housing prices in the Northeast have risen somewhat more slowly, particularly compared to the Southeast and West Coast, and continued trends toward urbanization and smaller dwelling units in the Northeast have also aided moderate growth and stable profitability in the Northeast self storage industry (5).  

Delinquencies Expected to Improve in All Regions – Except Midwest

When asked about their year-over-year delinquencies, about three-fourths of operators in all regions report that they have decreased or remained the same as the previous year. Regional variations are mild, with the Northeast faring the best (79.3%) and the Southeast somewhat lower (72.4%), with all other regions in between. However, regional differences in expectations that delinquencies will remain stable or decrease over the next year are sharper, with more than a 10-point difference between the most optimistic Southwest (82.9%) and least so Midwest (71.1%). Moreover, the Midwest is the only region where fewer owners and managers expect a stable or decreasing delinquency rate compared to what they’ve experienced over the past year. Although the self storage industry has grown moderately within the Midwest with fairly stable profitability and moderate facility construction, particularly in suburban areas (5), the region as a whole has experienced slower economic growth and challenges retaining population (4).

Greater Concerns About Oversupply than Demand in All Regions

Given the previously noted optimism about self storage demand being highest in the Northeast, it is not surprising that fewer operators there (35.4%) express concerns about diminished demand than most other regions. Perhaps somewhat surprising are the elevated concerns in both the Southeast (50.7%) and Southwest (48.6%). Both regions have experienced strong growth and high profitability in the industry, driven by population growth (5). In fact, the Southeast has outperformed other regions with respect to population growth, labor force, and real personal consumption expenditures (3). Perhaps there is a fear of market saturation in those regions because of the rapid growth of the industry. As noted in our last installment, concerns about potentially decreasing demand were emerging as early as 2005, prompting the SSA to conduct its first-ever SSA Demand Study. In 2022, that study showed consumer penetration to be about 12% in the (combined) Southeast and Southwest, substantially higher than both the Northeast (10%) and Midwest (10%). Hence the low levels of concern in the latter two regions (35.4% and 37.1%, respectively). There is also little concern in the West Coast (37.7%) despite having the second highest regional penetration (11%) according to the 2022 SSA Demand Study, although industry growth in that region might not be as aggressive as in the Southeast and Southwest.

And importantly, concerns about diminished consumer demand are eclipsed by economic concerns and oversupply. The economic downturn is the greatest concern in the Southeast (66.4%), Midwest (59.8%), and West Coast (69.8%), while interest rates are the biggest worry in the Northeast (64.6%) and Southwest (60.0% - tied with concerns about oversupply). Concerns about over supply are higher than concerns about consumer demand in all regions, suggesting a possible imbalance in supply and demand. In other words, the market can remain healthy with respect to consumer demand but nevertheless experience oversupply due to competition. Oversupply concerns vary sharply across regions and are highest in the Southeast (61.9%) and lowest in the West Coast (49.1%), where fewer than half of operators are concerned about oversupply. Oversupply might also help explain why vacancies and slower facility build-outs occur in some areas, despite the SSA Demand Study signaling continued strong consumer demand across all regions.

Lack of debt options is the least concern of operators in all regions, with fewer than half in the West Coast (45.3%) and only about one in five in the Southwest (22.9%) reporting that concern.

Move-In Activity Expected to Increase More than Move-Outs in All Regions

All regions report that move-in activity has increased or remained stable in the past year. That said, there are a number of variations across regions worth noting. About two-thirds of operators in the Southeast (67.9%) report stable or increasing move-in activity, compared to more than three-quarters of those in the Southwest (77.1%). This might seem surprising, given the previously noted robust overall economic growth, as well as strong growth in the self storage industry, in both regions. The answer might be in the move-in activity forecast for the upcoming year, where the Southeast (88.1%) outranks the Southwest (80.0%) and is second only to the Midwest (93.8%). So, it appears that operators in both the Southeast and Midwest – the two regions with the lowest reported increases/stability in recent move-in activity – expect to catch up with the other regions.

Note also that in all regions a greater percentage of operators forecast more move-in activity than they’ve experienced in the past year, a clear sign of improving conditions. This expectation is also reflected in their reported and forecast move-out activity. Although operators in every region reported stable or increasing move-out activity in the past year compared to move-in activity, they expect move-out activity in the coming year to be less than it was in the past year. The West Coast and Southeast lead other regions in both reported and forecast move-out activity, with little variation among other regions.

Conclusion: Overall Optimism Despite Regional Concerns

Comparisons of the results of the 2024 SSA Industry Confidence Survey across regions in the US reveal a number of insightful regional variations. Not surprisingly, variations in the different measures of optimism, confidence, concerns, and activity track with broader regional trends in economic growth, population movements, and housing activity, as well as growth, profitability, and construction specific to the self storage industry. Yet despite these regional variations, there is an overall consensus among operators that conditions are improving and will continue to improve, resulting in an overall optimistic outlook for business in the upcoming year. That said, the overall state of the economy, interest rates, and potential over-supply are the top three concerns of about half or more of all operators, albeit with some regional variations in the intensity of those concerns. Unfortunately, no one can foresee the future, and forecasting how the economy will move is particularly challenging with continued mixed signals from the Federal Reserve and especially during an election year. As we concluded in the first installment of this series on the SSA Industry Confidence Survey, cautious optimism seems to be the accepted outlook for the near future.

Footnotes:

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1bls.gov

2census.gov

3atlantafed.org

4stlouisfed.org

5cushmanwakefield.com