The self-storage industry has undergone significant changes since the onset of the Covid-19 pandemic. At the height of the pandemic, self-storage facilities saw record-breaking occupancies and rental rates.
However, as the world adapted and economic conditions shifted, so did the strategies that Real Estate Investment Trusts (REITs) employed in this sector. With a slowdown in the housing market and rising interest rates, self-storage operators, especially REITs, have returned to the pre-pandemic practice of offering steep discounts to attract new customers.

Despite these lower advertised rates, a strategic shift to more aggressive Existing Customer Rate Increases (ECRIs) has proven highly effective, enabling operators to grow revenue and report positive year-over-year Net Operating Income (NOI) growth.

The Impact of Discount Models and ECRIs

The COVID-19 pandemic initially pushed self-storage rates to unprecedented levels due to increased demand for space as people downsized or reorganized their homes. The surge in demand led to a development boom, with new storage facilities popping up to meet the needs of a growing customer base.

That said, as the housing market slowed and interest rates rose, the landscape for self-storage operators changed. To attract customers amid these economic challenges, REITs have reintroduced the heavily discounted lease-up model that was prevalent before the pandemic. By offering attractive rates to new customers, these operators aim to fill their units and maintain high occupancy levels.

Despite these lower initial rates, self-storage operators have successfully increased their revenue through ECRIs. REITs have boosted their overall revenue by implementing regular and strategic rate increases for existing customers. This approach has proven effective, with REITs reporting strong year-over-year NOI growth thanks to the success of their ECRI programs. Balancing lower introductory rates with higher ongoing rates has allowed self-storage operators to navigate economic uncertainties
while achieving financial growth.

Resilience and Customer Retention in Self Storage

Self-storage has long been considered a recession-resilient asset class, and recent trends have reinforced this reputation. The ECRI model highlights the "stickiness" of self-storage customers, a crucial factor during economic downturns. Statistics reveal that fewer than 5% of customers vacate their storage units within 30 days of a rate increase. This remarkable retention level underscores the value that customers place on their storage units and the effectiveness of the ECRI strategy in maintaining occupancy and revenue.

The stability of self-storage as an asset class is further evidenced by its performance across multiple economic cycles. Even during periods of financial uncertainty, the demand for self-storage remains relatively stable, making it a reliable investment choice. The ECRI model's success during recent market fluctuations demonstrates the resilience of the storage asset class and its customers.

Future Outlook for Self-Storage

The self-storage industry is expected to continue benefiting from its resilient nature an effective revenue strategies. Although ECRIs will remain a key component of revenue growth in the near term, the absorption of new supply in most markets is anticipated to support continued growth in rental rates. The challenges associated with new construction, including increased costs and regulatory hurdles, will likely constrain the pace of new developments. As a result, existing facilities may see further increases in rental rates, benefiting from both ongoing demand and limited new competition.

Aggressive ECRI strategies and a recession-resilient asset class have positioned the self-storage industry for continued success. REITs and other operators leverage these tactics to adapt to shifting market conditions while ensuring sustained revenue growth. As the industry navigates these challenges, the effectiveness of ECRIs and the inherent stability of self-storage will remain crucial factors in achieving long-term success.