View Point - Mini Storage Messenger, July 1, 2008
View Point
Mini Storage Messenger
July 1, 2008
Historically, when there is a downturn in housing in most markets, there is a six to nine month transition period for self storage leasing. It is during this time that potential self storage customers begin to heavily reconsider their financial situation. "Do I need to sell my home?" "Should I downsize to reduce my monthly mortgage payments?" "Maybe I should not buy a new home at this time?" All are standard questions potential residential customers ask during this transition period.
Commercial potential self storage customers have somewhat of the same initial reconsideration of their financial situation as residential customers. "Should I downsize my retail space?" "Should I increase my display area by decreasing my inventory storage area and lease storage space elsewhere?" All valid financial questions and all leading to the six to nine month transition period of less self storage leasing activity.
After this consumer transition period, most markets affected by a housing downturn, gradually increase leasing activities back to normal levels. The difference is the reason for leasing! Before the housing downturn, mobility within the market is caused by families buying new homes, "upsizing," moving from "starter homes" to more family oriented housing. After a market housing downturn begins, mobility is caused by "downsizing," moving to a more financially advantageous situation. Meaning, leasing or buying a new dwelling with considerably less space to make it more affordable.
Both economic conditions in housing markets create mobility. Historically, self storage leasing rates in markets experiencing a housing downturn have a 10 to 15% lower leasing rate than normal times, but, only for a short period. Even though self storage leasing continues during "bad times," there is one more difference between "on" and "off" housing markets that must be considered. Rents normally decrease also!
In summary to the question of "do you think the self storage industry will benefit from the downturn in the housing market?", I've never seen any time when the consumer is suffering that our industry didn't suffer right along with them! Our saving Grace is that due to those factors mentioned above, our industry doesn't see the economic impact that other real estate classes do during the same conditions!
Mike Parham