In 1928, right before the Great Depression a year later, there was a national meeting of business leaders to go over how great things were going and what their predictions for the future were. Of those 30 leaders in attendance – fast-forwarding just a few years into the Great Depression of 1929 – roughly half ended up bankrupt, in jail, or dead from suicide. Indeed, nobody can truly predict the future, and that necessitates being ready for change. And that includes self-storage investing.
Nobody really knows where America is going
A post-Covid America has brought about new megatrends that were not even on the radar screen prior to 2020. On top of that, it would appear the nation has entered a new era of the dreaded “stagflation” last seen in the days of Jimmy Carter – inflation is now at a 30-year high. Meanwhile, we have experienced urban rioting not seen since the 1960s, and a new movement of employees quitting their jobs at a pace that many find impossibly large. Anyone who claims they understand America, have confidence in America or can predict where it’s all heading is a liar. And that includes self-storage investing.
Stick with plans based on macro megatrends
While nobody knows the final destination of the U.S. at this point, there are some very specific megatrends that you can count on, and that will have a huge impact on self-storage investing going forward:
- The Great Migration. This is the megatrend of Americans moving away from big urban centers and moving to suburbs and exurbs with less density and higher quality of living. This one trend is having a huge impact on storage investing, as those who are buying these suburban and exurban storage facilities are rising with the tide and those stuck in big cities are showing greater vacancy and lower rents.
- The Great Resignation. This megatrend is confusing nearly everyone, who cannot understand how Americans can afford to quit their jobs (we’re equally confused). This trend is causing wages to rise and productivity for small businesses to plummet, but the long-term trend is hard to predict. Some think it will lead to even a greater number of Millennials living with family members (that number is currently around 25% to 50% based on where you draw the line of young people). It certainly may contribute to higher storage demand as you have to place your things somewhere when you give up your home.
- The Housing Crisis. The fact that homes are unaffordable and extremely expensive per square foot gives pressure on those who have homes to store items elsewhere since floor space is at a premium. A 10’ x 10’ storage unit literally frees up a 10’ x 10’ room in your house.
- Stagflation. This is a new trend that may have grave consequences for the U.S. economy. In stagflation you have high inflation yet economic recession. The last time the nation saw this was under Jimmy Carter in the 1970s. Back then it was triggered by the energy crisis (OPEC limiting oil production) and this time it’s triggered by energy crisis again (this time of our own making) plus the supply chain disruptions from Covid (such as the thousands of container loans of goods sitting in the harbor in Long Beach, etc.). Inflation is a friend of real estate, so stagflation is fine for storage investing as long as you can raise your rents in-line with inflation numbers.
Because none of us know where things are truly heading in this moment of economic uncertainty, it’s stupid to overcommit to any assumption. One of the hallmarks of American naval commanders in World War II was their refusal to ever commit their forces to one angle of attack. They acknowledged they really did not have the information in the dense fog, low-quality radar and lack of visibility at night to make strong commitments as to how to attack. This perpetually defensive posture paid off with continual wins and rare massive losses. Adopt that same attitude at this point. Don’t invest in deals that are marginal, and don’t go “all in” with any storage property.
This is a crazy time in America, yet you have to make good investments to forge financial independence and additional income streams to protect yourself from all the uncertainty. Make self-storage investments with your eyes wide open to the challenges all around you.