By Jim Meservey, Storage One

I don’t think anybody would disagree that it has been a gut-wrenching, anxiety-filled 18 months for the world, national and local economies.

The downturn has been unprecedented as to its severity and far reaching impact. Very few, if any, segments of the economy have been spared. The difference in 2009 from 2008 is that we now can put familiar names and faces to those who have been impacted; whether it’s a friend that lost his job to corporate downsizing or a family member that lost his house to foreclosure. It’s probably safe to say that everybody’s family tree harbors personal casualties from this recession, and 2010 promises to deliver more of the same. BUT, with that said, thank goodness we are in the self storage business!

The Las Vegas self storage market has proven to be fairly resilient throughout this recession, even though it has been subjected to an economy plagued by stagnant residential growth with high foreclosure rates, numerous business failures and, for the first time in years, negative population growth. Although it is difficult for operators to accurately predict, and react to, the effect of all of these issues on our business, what has proven true is that the fundamental principles of self storage remain sound and economically viable. Our product in Las Vegas still has high demand and yields a good price.

Facilities operating in strong demographic and highly traveled locations remain high performers with superior occupancies and cash flow. And YES, a few have even experienced occupancy growth without sacrificing rental rate structures! Occupancies at these locations remain in the mid eighty to mid ninety percentile with rents well over $1.00 per square foot.

Facilities operating in the former growth areas of the northwest and southwest valley have been challenged to succeed. Built to serve the demand created by the expanding residential markets, these facilities are usually newer, still absorbing and built when all components of development were at their highest prices, usually resulting in high leverage. High leverage is difficult to operate under in a strong market, but in a weakening market, it can become toxic. That’s when a good relationship with your lender becomes imperative! In these submarkets, it was bad enough when the residential growth virtually stopped overnight, but then the markets actually started to contract through foreclosure. It is well publicized that several of the highest foreclosure markets in the nation are in Las Vegas. There was doom and gloom everywhere. Surprisingly, the foreclosure market, for a short period of time, created an increase in demand for these facilities. We were enjoying a very successful 2008 spring rental season, despite all of the economic collapse around us. The theory that self storage does well in good times and even better in bad times was proving true. However, this euphoria was short lived. A very high percentage of this rental wave quickly turned into some of the highest delinquency and auction rates ever experienced in Las Vegas. It was finally our turn to feel the recession! Smart operators, which we all are, began to focus on the fundamentals of operations; rental rates, cash collections, direct marketing campaigns, on-site manager training and customer service, to name a few.

As we say in this business, “Everybody needs self storage; they just don’t know it yet!” With a new focus on marketing, operators began to think outside of the normal self storage box to create new ways to sell their product. They sharpened their pencils, dusted off their marketing manuals and placed direct marketers on the streets to hand deliver their message of “Rent Today!” Operators were successful in converting foreclosure tenants to good paying stable tenants. Their efforts seem to be working!

In addition to this, operators are now monitoring their competition much more closely. They were concerned about “Who is going to be the first to drastically lower rents?” Fortunately, these former growth submarkets appear to be stabilizing with only manageable decreases in market rents. Blended rental rates have dropped to just under $1.00 per square foot from a high of approximately $1.10 per square foot at the end of 2007. And, foreclosures are beginning to turn into new homeowners, thereby turning into new tenants. Occupancies, after about a ten percent drop realized during the later part of 2008, appear to be heading slowly north again. And, with a deep sigh of relief, we are currently enjoying a good rental season. It is true that tenant stays are shorter and the first half of the month is much slower than the second half, but by the end of the month we seem to be whole again.

Self Storage operators have many reasons to be bullish on the Las Vegas market. Keep in mind that this downturn has virtually eliminated all new self storage development in the Valley. This was desperately needed for the long term health of the industry and is a substantial benefit to everyone operating in the market today. It is inevitable that Las Vegas will begin to grow again. So, if you are surviving in today’s market, you should hopefully prosper greatly when this economy moves full speed ahead.