Is a Tight Economy Impacting the Canadian Self-Storage Industry? An Insider Shares the 411

Though the Canadian self-storage industry is often compared to that of the U.S., it has its own characteristics and nuances. To understand what’s happening north of the border amidst a challenging economic environment, Inside Self-Storage reached out to Robert Madsen, president of U-Lock Mini-Storage Group, which operates six facilities in British Columbia. We asked for his take on the market from an operator’s and developer’s perspective and his predictions for the future of the business in the region.

Robert Madsen, president of U-Lock Mini-Storage Group

What’s the general state of Canadian self-storage in 2024?

The industry has been stagnant. We aren’t seeing big declines in revenue, but we also aren’t seeing big gains. One reason is many operators are managing their revenue fairly. However, there are also some huge pressures coming on the occupancy side. We’re seeing declines from the highs of 2022.

Demand has also shrunk. There are a few reasons for this, but primarily it's the rapid rise in interest rates. It’s really impacted decision-making and the residential real estate markets, which feed into self-storage from relocations or people renovating and preparing their homes for sale. People have paused to carefully consider their next move. Fortunately, we aren’t seeing heavy activity for move-outs.

Again, it’s just a very stagnant picture; and it’s consistent across Canada, with some exceptions in markets like Alberta, where the economy seems to be having a boom. One thing we’re seeing, unfortunately, because there's less demand is that some existing self-storage facilities are battling by dropping rates significantly or using aggressive discounting. Maybe that'll translate to some erosion of market rates in those areas. And as we know, it's difficult to move rates up from a point you've set them, so it's going to be interesting.

Who are your primary customers these days?

One thing I love about the self-storage industry is the diverse tenant base. The makeup really depends on where the facility is located, as we know most customers generally like to be close to their facility, living or working in that region. There has to be purpose to why they chose that location.

What we find is a storage facility in the suburbs has a high residential tenant base. It’s mostly people living in that surrounding area. There are always some businesses, of course, but it's going to be to a lower percentage. On the flip side, if you have facility in the middle of a downtown core, you may find the majority of tenants are businesses and people doing different services, and they need room for inventory or flex space.

All this adds a significant diversification to our revenue. When the economy affects certain sectors a little more than others, having a diverse customer base spreads out our risk.

What’s the status of self-storage development in Canada?

We’re definitely seeing a lot of interest in ground-up self-storage development. People are looking at conversions as well, but I find that the sheer cost of conversion comes very close to that of ground-up, so there isn’t a huge advantage. Sometimes there can be a little bit of timing advantage, but you might not end up with a product that’s superior in your market.

We're seeing a lot of discussions about new self-storage developments in certain sectors of Western Canada, like downtown Vancouver. There’s a significant amount of building in that region, and it's caused a bit of disparity in the balance of demand and supply. It’ll take some time for that market to stabilize.

One challenge in Western Canada is land is very expensive, be it in the city or suburbs. There isn’t a lot that’s zoned appropriately for self-storage. Construction costs are also high. In some cases, if there are constraints, it can be even higher. Then the entitlement and planning process can be extremely long. Property taxes are also quite high in our region.

I see a lot of folks moving toward development because we don't have a lot of self-storage property sales in this region. There are a lot of owners who don’t want to part with their facility, and we don't have very favorable tax treatment. It’s one reason why new facilities are generally the target.

What other challenges does the Canadian industry face?

Other than lack of land for new construction, we definitely are challenged on the staffing side. It has become more difficult, and it’s one of our highest expense lines. Employees are all trying to overcome the high costs of living. They want a high income. Some who are new to working are asking for quite a lot in compensation for their employment, and there’s big interest in having a higher title or responsibility that applies to personnel in management roles.

There’s also financing, which is really putting a pinch on a lot of self-storage development. Banks are being extremely cautious right now, and that plugs into this stagnation. They aren’t sure where things are going, so they're being very careful about to whom and how they lend money.

Have there been any big changes in the Canadian self-storage market recently?

We’re definitely see the implementation of a lot more technology. There's been huge advancements, and they’re really impactful now to revenue and the customer experience. Before, technological advancements were nice with great benefits, but they weren't having as huge an impact.

We’re seeing different things like artificial-intelligence (AI) integration or elements in software similar to AI to help us with client retention or gaining new customers. We're seeing great advancements on websites, and we’re more effective in closing sales and getting a rental online without a lot of human interaction, which is amazing. Then we're seeing great access control and different ways the customer experience can be impacted at a facility. Customers are showing that they’ll pay for those benefits, so it does affect the bottom line.

What do you predict for self-storage in Canada?

I'm cautiously optimistic. If we want to look at the short term, it's going to be fairly stagnant. We aren’t going to see any big record gains. We might even see a little pullback in a couple regions, but it isn’t going to be anything huge. Most self-storage operators are positioned at a nice occupancy and rate level. It's just sort of making it through this year. It should be pretty quiet in some ways compared to what we've been used to.

I'd like to think that 2025 will see some better activity, a little more positivity. We still see strong population and business growth. People are still moving. We'll see more of a return to normal—a slightly more positive normal—in the years to come.

Overall, things are good in Canada. We're in a great industry with great clients. We really do serve communities extremely well in their needs. I love spreading that to folks, to really understand the metrics of the positive impact of self-storage in our communities.