Higher costs will limit self-storage supply through 2023 – Public Storage execs

Rising material, labor and land costs, as well as the challenge of gaining city approvals, will likely keep development of new self-storage facilities limited through 2023, Glendale, Calif.-based Public Storage executives said.

On a Feb. 23 earnings call, Public Storage CEO Joseph Russell said supply deliveries in the U.S. self-storage sector is in the middle of a three-year holding pattern, which began in 2021 and will likely last through the end of 2023.

Russell said the company expects between 500 and 600 new self-storage facilities to be completed annually, keeping supply relatively low.

CFO Thomas Boyle said strong demand and limited inventory helped the company achieve move-in rental rates in 2021 that were 19% higher than in 2020, and 33% higher than in 2019. Boyle also noted that rate increases were complemented by lengthening customer rental periods.

The rise in the number of employees working from home as well as increased worker flexibility and migration helped to boost customer demand for self-storage space during the first two years of the pandemic. Large occupancy gains throughout the pandemic have left many operators either mostly or fully leased, a trend that is expected to start slowly reversing in 2022.

Rents to moderate

Public Storage is seeing strong average rent gains across the portfolio in early 2022, which should continue through the first half of the year. However, that pace is expected to moderate in the second half of the year, executives said.

Boyle pointed to New York City as an example, which had a strong early performance during the pandemic but has since slowed, averaging rent growth of 7% in the fourth quarter of 2021. In comparison, Sun Belt markets like Miami and Atlanta have continued to enjoy double-digit average rent growth.

"We've seen that growth start to moderate in certain earlier recovery markets. So we anticipate that to play through the system," Boyle said.