Joe Downs breaks down four data points operators should track: the U-Haul Index for migration, housing permits as an 18-month demand signal, rate swings, and the supply pipeline. He argues self-storage thrives during recessions through the "4 Ds" (death, divorce, downsizing, dislocation) and recommends buying in migration-heavy markets with cap-rate spreads above 150 basis points.
Chapters
Welcome to day 32 of the Storage 100. I'm Joe Downs of the Storage Mastermind, and today I want to expose you to something crucial: how to actually analyze the market without guessing. Kind of important. I'm going to move you past the headlines and focus on the data that truly gives you storage demand today. This isn't about predicting the future, it's more about interpreting the present and the near future, and we need to understand the difference being an amateur and being a pro when it comes to market analysis. So biggest mistake people make is trying to predict interest rates in 2027 or guessing when the next crash will happen. That is the crystal ball myth. The amateur bets on gut feeling and reads scary headlines saying things like, I feel like the market's going to crash. Or the pro, however, analyzes established data and bets on clear trends. They look at the numbers, Not the noise. You should be saying things like migration's up 12% year over year, not, you know, I have a bad feeling about this. You know, I want— in the Storage Mastermind, we want to be thinkers, not feelers. It's okay to have a gut feeling, but let's base that gut on data. So remember this simple rule: trend lines beat headlines. I'm gonna say it again: trend lines beat headlines. So let's look at the first major trend that is clear, that is a clear indicator for self-storage demand. First trend we're going to track is population migration, and it's the single biggest driver of new storage demand. We see people fleeing high-cost, high-tax states like California and New York, and this is no surprise to anybody if you've been paying attention. They're fleeing to places like Texas, Florida, Tennessee, the Carolinas, Georgia, right? And we track this using what I call the U-Haul Index. You don't need a fancy report. Just check the one-way rental prices. When it costs $3,000 to rent a truck from California to Texas, but only $800 to go the other way, you know exactly where the population's moving. People move for 3 reasons: jobs, affordability, and taxes. Don't fight that tide. Swim with it. All right, so now let's look at the second trend. that tells us exactly where the new customers or when the new customers will arrive. That's housing permits. They are your 18-month crystal ball if you want a crystal ball for future storage customers, assuming they got it right. And economies can change, but it's what we have to go on, right? And this trend is a simple timeline and it's gonna tell you exactly when new supply will turn into new demand or should turn into new demand. So when a developer files paperwork for a new apartment complex or a new housing development, That's month 0. 6 months later, they roughly average— 6 months later, they're probably breaking ground and starting construction. Around month 12, residents are going to start to move in and their garages get full. Our opportunity as storage owners is going to hit it around month 18. That's when the overflow needs a home, and that's where we win. Remember this: permits today equal customers in 18 months. But even with all this new demand, we have to be smart about how we underwrite our income. And the third major trend we're going to track is rate volatility. And where most people make the mistake is in their underwriting. So we see a huge spread between the peak street rate and the trough street rate, sometimes as much as $40 in a single year. The market breathes, folks, and you can't choke on the exhale. You have to make sure you don't underwrite your deal based on the peak rate you see today. If the current street rate is $145, but the year-over-year change is 12%, you know that rate is going to fluctuate. Always underwrite conservatively, knowing the rates will drop before they climb again. Now that you understand the rate volatility, let's talk about the real threat, and that's the supply pipeline. This is going to be your crystal ball for future revenue pressure. You need to know where your market sits in this cycle. Projects in planning is a low threat, meaning new facility projects in planning is a low threat because half of those projects fail before they even get funding. Permitted projects is a medium threat because they might be funded, but they might still face some hurdles. But under construction projects, this is a critical threat level. That supply is coming almost 100% of the time, and you have to factor that into your underwriting. Ignore the pipeline at your own peril because your new supply per capita is the only metric that's going to matter. All right, let's talk about why storage is the ultimate recession hedge. If and when the economy tanks, and at some point it will, we— it always goes through cycles, demand when it does almost becomes a certainty. Self-storage is the ultimate recession hedge because our demand is driven by the 4 Ds. Think of this as the U-Haul index of human misery. Death means families need time to sort estates. They need a place to put Grandma's things while the house sells, or even while they're preparing for it to sell, and they don't know what to do with all, all the stuff just yet. Divorce means one household becomes 2, usually creating an immediate need for temporary space. And downsizing happens when the economy tightens and people move to smaller homes. Young adults move back in with parents or they move in with each other. Either way, they won't sell their stuff, so they store it. And finally, dislocation. Job changes or relocation means life is in flux and stuff goes into storage. Good economies mean we buy stuff, but a bad economy means we store stuff. This is why we need to update our buy box for the current climate. The 4 Ds prove that demand is resilient, but you can't buy assets the way you did in 2021. You need to update your buy box. So for the bigger buyers, back in 2021, the buy box was simple. Any cap rate would do. You only looked at the top 50 MSAs and you chased stabilized yield. That world is gone today. Your cap rate spread must be greater than 150 basis points and you need that margin. You got to focus on growth markets, the migration markets where people are actually moving to, and your strategy needs to be heavy value-add. You can't look for yesterday's deal today. You need to create that value yourself. This is how you're going to win in this environment. All right. So we covered the supply pipeline, the recession hedge, and how to update your buy box, which means day 32 is complete. You've got the playbook. Now go execute. Hit the like button for me if you're tired of me asking you to hit the like button. Believe me, I'm tired of it too. But the algos say I have to ask for it. I don't want to, but they make me. Subscribing is for you, of course, so you don't miss the drops and the lives. And of course, sharing, which is also for you because it shows your network what you're up to. And of course, sharing can still be caring. So please share this with an economist friend, maybe, who's never contemplated the supply and demand forces of self-storage. They might thank you later.
