National Economy

• After the substantial economic disruptions of 2020 and the subsequent recovery in 2021, the economy is staged to grow between 3 percent and 4 percent in the coming year, fueled by robust consumer spending and corporate profits. Since the onset of the COVID-19 health crisis, the collective balance of savings deposits and money market funds has increased by over $5 trillion.

• A significant impediment to growth in 2022 will be logistical hurdles. A shortage of raw materials and finished goods has contributed to multi-decade high inflation. Resolving the backlogs and blockages in the global supply chain will take time, extending this inflation pressure beyond the beginning of this year.

• Another substantial challenge facing the economy this year is a tight labor market. While about 85 percent of the jobs lost at the onset of the pandemic have been restored, with 3.7 million new positions expected this year, employers’ staffing needs are still not met. There are more open positions than people looking for work, a shortfall that is fostering upward pressure on wages.

National Self-Storage Overview

• Self-storage properties have delivered record performance over the past two years as lifestyles adapted to the pandemic. The closure of offices and college campuses, as well as other lockdowns, prompted many households to place belongings in storage units as they turned spare rooms and garages into home classrooms, offices and gyms. The resulting rapid drop in vacancy has restored rent growth.

• The untethering of numerous office workers has accelerated a migration trend that was already underway as more millennials age into common family formation years. Millennials represent both the largest and most active share of self-storage renters, making their lifestyle changes especially relevant for self-storage owners. Many households are relocating to larger accommodations in nearby suburban settings or in new markets that offer other advantages, such as temperate weather, benefiting self-storage properties in satellite cities and the Sun Belt.

• More self-storage operations are adapting to a “touchless” business model, which has been encouraged by the pandemic and expected from younger renters. Businesses also benefit from this practice by receiving increased off-hour leasing activity.

Capital Markets

• In 2022, the Federal Reserve faces the delicate dilemma of curbing historic inflation, while also maintaining positive economic momentum. Inflation that has surpassed the Fed’s expectations is forcing them to become increasingly hawkish. The central bank will conclude its health-crisis era asset purchasing programs in March, when it is also likely to raise the short-term Federal Funds rate for the first time this year. The Fed may also consider reducing its balance sheet in a quantitative tightening process.

• The durability of self-storage properties over the past two years is supporting the ready availability of capital for investment sales. While lending conditions have generally tightened since the onset of the pandemic, financiers have favored self-storage.

Investment Outlook

• Improvingpropertyfundamentalsamidthehealthcrisissustainedinvestors’interestinself-storage through the pandemic. The property type’s resiliency and recession resistance took center stage, enticing fresh capital into the sector. A record number of self-storage properties changed hands last year, with the competitive bidding environment applying ample downward pressure on cap rates.

• As multidecade high inflation persists this year, more investors may turn their attention to self-storage. Because units are generally rented on a monthly basis and operators can respond quickly to changing market conditions, the property type is considered one of the strongest inflation hedge options in commercial real estate.