Tom Boyle: Yes. I think that there is a number of factors at play. And certainly, as I noted, we were in an environment where moving rents, you pick a market move in rents in Miami, for instance, we’re up significantly in the 2020, 2021, 2022 time period, and we’re giving some of that back. And I think as an industry, no question that’s playing through. But as we think about the different components at play as we head into ‘24 and ‘25, housing has gotten a lot of airtime this year around its impact to demand. No question, that’s a component of demand. And that’s been softer. If you look at existing home sales over time, they have been in a range of, call it, 4 million to 7 million existing home sales per year. We’re trading right around that 4 million today, which if you go back and look at the financial crisis or other periods where the housing market is has slowed down pretty consistent.
So we worked through that decline as we move through 2023. And – so that’s helpful as we think about the setup into ‘24 and ‘25 and the fact that existing home sales aren’t likely to take another significant leg lower. But obviously, we will see how that plays out. The other side is renters and people that are running our space at home, there is less movement. And frankly, those are good storage customers, and they tend to have longer length of stays in some instances, in many instances. And so we’ve seen that benefit as we move through this year, longer length of stays for move-ins this year and have been getting good customers, which again supports ‘24 and ‘25, supports occupancy, I think, for the industry overall. So those are all helpful as we move into ‘24 and ‘25.
And I’d add to that, the fact that the development environment continues to be quite challenging. Construction costs are up over the last several years, city processes continue to be challenging with understaffing and delays. And no question, cost of capital in the construction lending environment is going to lead to lower levels of deliveries as we go into ‘24 and ‘25. All of those things are helpful as we think about stabilizing rental rates in some of the markets that maybe I even characterize as maybe overcorrecting in some instances. I also think getting into the busy season next year will be quite helpful, right? We go into a time period in the spring where seasonally, you’re going to see more demand. This year, we didn’t have much of a season, partially attributable to the housing environment.
So the comps from a seasonal standpoint next year are a little easier. And we will have to the benefit of what plays through in ‘24 to the dynamics with moving rental rates heading into March, April and May of next year.
Todd Thomas: Okay. That’s helpful. And then my other question is around the development and expansion pipeline, which decreased a little bit in the quarter versus last quarter. I realize it’s just one quarter, not necessarily a trend, but the environment is more challenging today. And I’m just curious if that is intentional at all as you look for either rents to stabilize or greater certainty around lease-up or if it’s just timing related. But really, just wondering if your return requirements maybe to start new projects have really changed at all in the current environment.
Joe Russell: So yes, to again, give full perspective on the focus and the priority we continue to put into our development and redevelopment capabilities. It continues to be our most vibrant opportunity from a return on invested capital standpoint. So we think that ironically or counterintuitively, this is actually even a better environment for us to source and compete for a land sites and b, work certain properties through entitlement and development processes where others are retrenching. The lending environment particularly tied to construction loans continues to be much more constrained. In fact, with the pressure into regional banks where most of the construction lending goes on, particularly tied to one-off construction loans for self-storage, again, very, very tough hurdles for any developer to meet very differently than we’ve seen over the last several years.
This continues to be a good opportunity for us to compete very differently and ideally look for expansion opportunities for the portfolio as a whole. The slight reduction, Todd, to your point, was just a – that was just a one-off quarter impact from some deliveries that took place. But the team is working very hard to continue to not only operate in an environment where, yes, some of the hurdles are being adjusted, but development is a long game as well. We’re dealing with multiyear processes not only to get a particular asset approved and launch from a construction standpoint, but then a number of years beyond that to get them stabilized. So in this environment, particularly, you’ve got to have very strong fortitude to get through those time frames, particularly with cost of capital being very different.
But we look at this as an ideal opportunity for us to continue to leverage the skills, the strong balance sheet and our knowledge market to market. The team is well seated nationally. We continue to find new and different opportunities region by region across the country, and we’re going to continue to work hard to not only unlock ground-up development, but redevelopment activity as well. So it continues to be a very vibrant part of the business that we’re going to continue to focus on very strongly.
Todd Thomas: Thank you.
Joe Russell: Thank you.
Operator: Our next question comes from Smedes Rose with Citi. Please proceed with your question.
Smedes Rose: Hi, thanks. I just wanted to follow-up, you mentioned expectations of lower deliveries, I think, industry-wide in ‘24 and ‘25. Is there – can you just quantify that a little more in terms of either dollars invested you’re seeing in the space or a percent increase in existing supply? And are there any markets where you see outsized growth coming up for one reason or another or anywhere it looks particularly favorable, meaning like very little growth.
Joe Russell: Yes. Smedes a lot of moving parts there, but step by step, and we’ve been speaking to this for some time. We’ve been seeing the usually difficult hurdles you go through to get projects a, approved and then b, funded and now again, with the constraints I just spoke to in the lending environment, getting them into production themselves. So statistically, we think most of the information out there is not accurate because it’s not reflective of the continued deceleration in annual deliveries. From a step-by-step basis going from this year to ‘24 and likely into ‘25, we think that the pool of assets that had been predicted to deliver are probably shrinking by plus or minus at least 10% or more on a per annum basis.
We had kind of ratcheted down to a delivery level nationally, plus or minus $3 billion or so of assets in the 2022 to 2023 time frame, and that’s going to continue to notch down in our view based on all the constraints that I just spoke to. It’s a very good thing for the industry as a whole, can’t really point to any number of markets that at the moment are overburdened from a delivery standpoint outside of potentially Las Vegas, Phoenix to a degree, Portland starting to work, but a little bit of an outstretched level of new deliveries in that market as well. But frankly, the good news is the amount of deliveries that have come to the market over the last couple of years has been slower, and it’s likely to continue to get slower from a volume standpoint going into the next couple of years.
