Self storage is an underrated real estate asset that’s gaining momentum and showing remarkable resilience to the effects of the pandemic. As an investment, self storage provides unique advantages you simply won’t find in residential properties.
As facility owners and managers ourselves, we can confidently say that self storage facilities typically don’t experience the same challenges you find in other real estate assets.
In this article, we outline some of the reasons investors are buying facilities to run or land to build their own, instead of investing in residential property. We take a look at self storage’s well documented growth despite global economic downturn, minimal maintenance, and the longevity of the clientele.
Self Storage Properties appear to perform well in both good and bad economies.
We thought we’d get straight to the point here and address the pandemic and the economic downturn.
Self storage has garnered serious interest among property investors since it emerged as a buoyant industry, the services of which are becoming a necessity to many rather than an optional monthly expense. As a result, already established industry players and startups are approaching self-storage with greater intent as they look for ways to diversify their portfolios.
To give you an idea of recent growth in the industry, the Self-Storage Almanac, 2021 edition reported that between 2019 and 2021 the number of self storage facilities in the US grew by 3000 to 50,000, with net rentable space reaching approximately 58 million square feet. Despite all these extra facilities to contend with, the demand has remained strong, with occupancy rates across the board averaging around 92% since 2020.
So, if you want an investment option that’s also a sound business with an extremely positive outlook, this is probably reason enough.
So what’s fuelled this growth?
The IBIS World Market Research Report, Storage and Warehouse Leasing Industry in the U.S., reported that popularity for self-storage services has dramatically increased in lower-cost cities, once considered secondary markets where populations are ‘growing, migrating, and changing’, predicting a compound annual growth rate of 2.2 percent, reaching $44.5 billion by 2024.
To give you more of a real-world example, let’s take a look at the recent influx of household consolidations. This is where grown adults have returned to the family home due to job losses and furlough schemes and have had to store the contents of their own homes. And let’s not forget the relatively new phenomena of ‘remote working’ fast becoming the norm. Suddenly the need for a home office has put very real pressure on already cramped living space, motivating many to seek solutions for clutter they aren’t quite ready to part with. As the world settles into remote working and the positive work-life balance it provides, the temporary work-from-home status is fast becoming a permanent prerequisite for those on the job market; no longer prepared to spend their hard earned cash and time on commuting. The result? A prolonged demand for home offices and thus storage.
Then there’s the restaurants, cafes, and small businesses that were forced to reduce capacity (to effectively implement social distancing in the workplace) or shut up shop altogether, meaning the need to either store assets in preparation for re-opening or while they waited to secure a reasonable price at auction.
The other side of this coin, is preparation tactics and good old consumer capitalism. Marcus & Millichap Research Services, U.S. Commercial Real Estate Investment Outlook “Self-Storage,” 2021 says that many businesses preparing for disaster were seen to stock up on inventory, making alternative space a necessity.
To bring it back to the bottom line and why you should consider self storage over any other property investment, take a look at the recent whitepaper from Liberty SBF, Self-Storage Financing for Industry Newcomers, Experts, & Everyone In Between. It explores the self-storage industry’s robust growth during the pandemic and how it’s been affecting financing for new and seasoned investors, stating:
“When it comes to the demand for self storage rentals, insiders say the four Ds – “disaster, death, displacement, and divorce” – have sustained these properties as a robust and continually growing sector of the real estate industry. Already looming as somewhat foreboding circumstances, those four factors are joined now by COVID-19. Self-storage, as it turns out, is fairly pandemic-proof, demonstrating strong performance and possibly the best growth over the last 18 months out of all real estate sectors.”
In support of these findings, the 2021 Self Storage Association Report (SSA) produced in conjunction with Cushman & Wakefield, also confirmed that the self storage sector showed significant growth during the pandemic!
Ok, so that’s the pandemic and its effect on demand out of the way, let’s take a quick look at other reasons self storage is a great investment…
You Don’t Need to Break the Bank on Cosmetic Upgrades or Incidentals
Many residential property investors make frequent cosmetic upgrades to their properties. Either through necessity or to attract a different kind of clientele. Since tenants live in these properties, they care more about functionality and modernity than a self storage customer. So, it’s no surprise that some investors lose money on these investments because of the requirement and demand for habitable environments.
Is the toilet leaking at your residential property? Has a fire caused smoke damage? Recent storm damaged the roof? These kinds of incidents can lead to higher and unexpected outgoings that will undoubtedly hurt your profits.
We might be stating the obvious here, but self storage tenants do not live on the premises. What these tenants primarily care about is security and ease of access. They also consider if the self storage property has sufficient space for their needs but that very much comes down to what they are prepared to pay for in square footage, not interior decor or built-in appliances.
Better yet, if you run your self storage facility ‘unmanned’ you won’t even need to worry about providing (and maintaining) an attractive lobby or reception area, much less a staff canteen or staff rest-rooms.
You simply don’t need to make many cosmetic upgrades to self storage properties. Lower investments into cosmetics allows you to keep more of the cash flow.
Tenants Stick Around During the Good Times Too
Now you know that self storage properties can offer some level of protection to investors from inevitable recessions and unanticipated global events. However, they also provide upward momentum during good times. Tenants who buy a self storage unit from you are likely to stick around for years to come.
Less Maintenance
Residential properties require maintenance above and beyond that of self storage. You may have lawn maintenance, pool maintenance, roof maintenance, and more. You’ll have to hand those costs down to your tenants but there may be a point where accepted costs and true costs just don’t meet. So what happens then? How do you keep rent at acceptable, attractive levels? Do you let the roof maintenance slide for a year or two and risk potentially disastrous leaks? Do you let the property gardens grow wild and free and risk devaluing the rental value of your properties? There’s a lot to consider, not least the safety and comfort of your live-in tenants.
While self storage properties need maintenance, too, what they require has no impact on the quality of life of your tenants and are a lot less complex. Typically what you can expect is the maintenance of security features and access points which can be dealt with on a case by case basis. A shutter door here and there and maybe replacing the gate with a smart entry system to allow your customers to self-service their move-in and move-out. If you’re taking over a pre-existing facility you might want to look at changing the branding and the website, but the property itself is low maintenance.
Recommended Reading
Stora Case Study: GB Storage Uses Stora To Reach 50% Occupancy In Month Four
Need to know more?
It’s a great time to be starting a self storage business. We’re self storage owners ourselves and we did it all during the pandemic so we know what we’re talking about. We hope this info makes your decision about investing in self storage an easy one.
If you have any other questions about the self storage industry, and how to make the most of it, feel free to drop us an email to hello@stora.co anytime. We’d be happy to help!
Sources:
- Liberty SBF - Self-Storage Financing for Industry Newcomers, December 2021
- 2021 Self Storage Association Report (SSA) produced in conjunction with Cushman & Wakefield Experts, & Everyone In Between
- Self-Storage Almanac, 2021 edition
- Marcus & Millichap Research Services, U.S. Commercial Real Estate Investment Outlook “Self-Storage,” 2021
- IBISWorld, “Storage and Warehouse Leasing Industry in the U.S. — Market Research Report,” April 8, 2021
