Hot Inflation, Hotter Self Storage Rents?

We have all seen the headlines. We even “feel” the headlines. Inflation in September 2022 was hotter than expected, at 8.2% over last September. So, does hot inflation mean hot, or even hotter, self storage rents?

So what is inflation?

According to the Federal Reserve, the central bank of the United States, “Inflation is the increase in the prices of goods and services over time. Inflation cannot be measured by an increase in the cost of one product or service, or even several products or services. Rather, inflation is a general increase in the overall price level of the goods and services in the economy.”

It’s interesting that the Federal Reserve describes what inflation is not. It’s not about the cost of one, or even several, products or services. This means an individual product’s or service’s cost may vary—and may vary a lot—without any bearing on whether or not inflation is occurring.

If we look at a sample inflation breakdown for September 2022, we see that rates can vary widely. Gasoline was up 18.2%. Individual grocery items such as butter and eggs were up over 30%! And airfares were up even more! Yet the overall inflation rate was lower at 8.2%. We can see that sporting event tickets were down 9.5% and televisions down 17.9%. Smartphones were down 21%!  Even in inflationary times, there are bargains to be had (or, for sellers, concerns about prices not keeping up with the economic times).

Inflation and your facility’s revenue management.

We will leave it up to the experts and economists on how inflation is measured, with all its components and complexity. But what store pricing means to you depends on your particular situation. As we can see, not everything goes up the same, and the prices of some goods and services may come down. So inflation can cut both ways at the detailed level.

In markets where changes in demand outpace the changes in supply, raising rents and street rates to “keep up” with inflation, or even exceed that of inflation, may be the most profitable course of action. But even in those circumstances, it may be more profitable to decrease prices on certain units (e.g. larger units) while raising prices on other units (e.g., ground floor units). We sometimes think of inflation driving all prices up, but in reality, the most financially successful companies use data-driven techniques to better assess where and when certain prices should be increased, while others are lowered.

Hot inflation, hotter self storage rents?

We have been, and always will be, a strong proponent of data driven techniques, processes, and systems as a business best practice. It is not just important to collect and act on the appropriate data, but in highly competitive markets, it may be critical to do so to ensure financial success. That data may include your competitor data, occupancy rates, and other critical data immediately affecting your business. Inflation data provides a backdrop; it can help assess whether it is appropriate to take more conservative or more aggressive pricing actions than you might otherwise choose to do.

Hot Inflation, Hotter Self Storage Rents? It depends on your particular situation. We all have a sense that inflation affects our lives, but we will leave it to the experts to determine how best to measure that impact. We do know, however, that revenue management data and best practices remain constant, whatever the inflationary rate may be.