America changed in March of this year, when the acknowledged arrival of the Covid-19 pandemic rattled the U.S. population with self-quarantine followed by urban riots and unrest. On top of that, many of the activities that we had all learned to enjoy (dining out, movies, theater, shopping) suddenly ceased to exist in the manner they had before. This ushered in what is now known as the “Great Reshuffling” by Bestplaces.net – which refers to the population moving from urban to more suburban and rural markets.
Here are the stats on the markets that are losing the most population
The sum of Covid-19 and urban unrest has created an environment in which many urban residents are leaving major cities. The top population loss includes the following urban markets:
- New York City
- New Jersey
- Chicago
- San Francisco
- Miami
- Washington, D.C.
- Boston
- Orlando
- Portland
- Seattle
But the bigger picture is that virtually all urban markets are seeing more move-outs than move-ins. And this creates a storage environment that results in lower rents and greater vacancy.
Here are the stats on where people are moving
As people are moving out of urban markets, then where are they heading? The stats show that these markets are gaining population and strength:
- Virginia Beach
- Sacramento
- Kansas City
- Indianapolis
- Riverside
- Richmond
- Omaha
So effectively the U.S. population is moving out of dense urban markets, and into more suburban markets.
Here are the stats on the type of markets people are investigating moving to
A recently released study shows that the desires of Americans have shifted hugely following Covid-19 and urban unrest. Prior to March 2020 (when Covid-19 began) most American households stated they were planning on moving to:
An Urban Area 37%
A Suburb 43%
A Small Town 11%
A Rural Area 9%
However, Post-Covid, those desires shifted significantly:
An Urban Area 19%
A Suburb 50%
A Small Town 11%
A Rural Area 19%
The bottom line is that American households were desiring to move to suburbs and rural areas at a combined rate of 52% prior to the advent of Covid-19, while these two areas now represent 69% of all home searches. That’s a very telling trend on current and future movement – one we would call a “megatrend”.
The impact on self-storage investing
We cannot be more emphatic that the buying opportunity in the current “Great Reshuffling” is in the suburban, small town and rural markets of America and not in urban areas. While the focus of Americans prior to Covid-19 was overwhelmingly urban market centered, those days are now over as Americans are fleeing the high cost, high crime and disease-friendly nature of these urban markets in favor of less density and a higher quality of life. Since storage appeals to those who are wealthy enough to have items to store, then this migration places future demand (and higher occupancy and rents) squarely on those markets that are outside urban cores. This is a huge shift in storage demand and one that is clearly obvious. The future of successful self-storage investing focuses on suburban, rural and small-town markets. That’s great news as they also represent higher cap rates, lower prices, and a more manageable deal size (around $250,000+).
Changes in direction open up greater opportunity for new and smaller investors
Just like a “broken playing field” creates opportunity for a running back in football, dislocations in any industry create opportunity for some and ruin for others. In this case, the opportunity here is for smaller investors and others new to the sector that do not have any “baggage” from current urban investments, as well as the ability to move fast and have an interest in smaller deals. Additionally, the current market works well for those who like people and can forge creative deals with lesser-sophisticated moms and pops, who typically favor the enthusiastic new entrant to the sector.
Conclusion
The U.S. is changing post-Covid 19 and smart storage investors embrace these trends and place them into the path of their investment targets. Staying in front of investor demand is a key trait of those who succeed vs. those who simply follow the herd.