TSAG Market Analysis: Greater Detroit

Hollywood has its view of Detroit – and then there’s the self storage industry’s view of Detroit.

In many movies, Detroit, the once mighty Motor City, is portrayed in almost post-apocalyptic terms – a desolate, dilapidated city gutted by the long and painful decline of the U.S. auto industry. It isn’t a flattering image. But talk to local self-storage industry folks and they see a hard-scrabble city in the early stages of a comeback, surrounded by solid and affluent suburbs, and in a state steadily diversifying its overall economy. It’s a much more flattering image.

“We’re doing all right,” says Peter Spickenagel, CEO of Citizen Storage and president of the Self-Storage Association of Michigan. “Detroit isn’t a market going like gangbusters, but things are pretty good. Things are definitely improving.”

And the data seems to back up Spickenagel and others’ view of the Greater Detroit market, as well as the southern Michigan market in general. Though the industry isn’t expanding as fast as in other parts of the country, Greater Detroit’s supply of new self-storage facilities has grown by about 7 percent over the past three years, indicating slowly growing investor confidence in the region, according to data from Radius Plus, the research arm of Union Realtime.

Meanwhile, the region’s self-storage rental prices remained remarkably steady in the years and months immediately leading up to the COVID-19 outbreak, hovering in the $110 range for a 10-by-10-foot climate-controlled unit, Radius Plus data shows.

Jonathan Spencer, an advisor at Storage Acquisition Group, agrees Detroit is showing signs of improvement. “There is an overall feeling of optimism from owners in the Detroit market and across the state of Michigan,” says Spencer. Like other metropolitan markets across the nation, the Detroit area saw a steep fall in rental prices in the months after the onset of the pandemic last winter, followed by a strong surge in prices in the second half of 2020. As of early February, the Detroit area’s rental prices were hovering in the $138 range, a solid figure, says Cory Sylvester, a principal at Radius Plus.

“We’re probably one of the most underbuilt markets in the nation,” says Adam Pogoda, a principal at the Pogoda Companies, owner and operator of 51 self-storage facilities in Michigan, running under the National Storage Centers brand.

“It’s getting more competitive,” he said. “It’s not like Nashville or Dallas, but it’s growing.”

Competition is getting stiffer in the Detroit area – and it’s not all coming from REITs.

“Working with the local players and having intimate knowledge of the market is key. Following the trends within the REIT's is important, but understanding the Detroit owners is the best way to know what is happening in a market" said Spencer, describing the market as “generally strong.”

“One of the great things about the Michigan economy is that it’s diversifying away from the auto industry,” says Pogoda.

Storage Acquisition Group’s Spencer agrees. If the self-storage business eventually picks up in downtown Detroit, then “you’re looking at a pretty solid market” in the long-term.

Greater Detroit at a glance

Source: Data from Radius+

Source: Courtesy of The Storage Acquisition Group Thumbnail: Photo by Josh Garcia on Unsplash