What the Wall Street Journal didn't include from our interview

July 26, 2023

The Wall Street Journal interviewed me for an article that they published yesterday (Tuesday, July 25th). Here’s what I think are the most important takeaways from the information we provided:

Rental rates have stabilized at the HIGHS of the previous cycle (2016): The Wall Street Journal published my chart below but what was missed, well, was the important takeaway. As you can see, the market has started to normalize, and while we are down 20% from 2021, we are still at the highs of 2016. Furthermore, I would expect this to be the bottom and for rates to grow from here starting in 2024.

StoragePostCovidRemainStrong (1)

As we look forward, there's also reason to expect that competition will be LOWER.  Most developers are unable to find debt currently, coupled with high construction costs we expect new development activity to fall. Over the next 18-36 months, our projects will be opening into one of the healthiest times with few other competitors opening with us.  If we look back to 2007-2012, a similar dynamic occurred in the debt markets, and new construction of storage slowed significantly. What followed that period was one of the strongest bull markets for revenue and NOI growth we’ve seen on record.

Construction Spending To Date (6)

Looking now at the DXD portfolio, we continue to see strong demand as our facilities are ~2-4x their projected expected occupancy levels. Additionally, the achieved and current rental rates are at or near expected levels we have modeled. We expect the achieved rental rates to accelerate even further as tenants that have been in our facilities for >6 months receive their first rental rate increases, which range from 20-30%.

Overall, we continue to underwrite new opportunities in Fund II, thus far we have underwritten over 7,000 deals. Most developers in the self storage market have slowed or stopped their deal making; DXD continues to have strong deal flow.

We look forward to further discussing these deals in the weeks to come.