Self-Storage:
A Low Risk Investment

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Consumers’ Growing Accumulation of Goods Leading to Growing Returns

John R. Homsher, CCIM, Principal

Self-storage has been on an upward trend since the late 1990s and has been “the fastest growing commercial real estate sector in the U.S.” for the past 30 years according to the Self Storage Association (SSA). In fact, self-storage has expanded to a point where there are now more storage facilities in the United States than there are McDonalds. The amount of rentable storage space in the U.S. exceeds 2.3 billion square feet, meaning the U.S. population stores more “stuff” than any other country.

Perhaps surprisingly, the majority of people who rent storage units reside in the suburbs. As of January 2015 the breakdown of self-storage facility locations was as follows: 52% suburban; 32% urban; and 16% rural. Taking those demographics a step further, approximately 65% of people who rent storage units have a garage in their home; 47% have an attic; and 33% have a basement. Part of the reason those who already have storage space in their home rent self-storage units is that the average amount of goods consumers own has increased tremendously over the years. Industry experts predict this trend to continue.

The self-storage industry was labelled “recession proof” when it consistently generated high profits throughout the financial crisis that began in 2007 – a time when many other commercial real estate classes struggled. Adding to the industry’s considerable appeal is the fact that, not only will there continue to be high demand, but the associated risks are lower: One person or family terminating their lease of a single unit does not significantly impact cash flow.

In fact, since storage units rent on a monthly basis, cash flow is easy to improve. For example, a $10 monthly increase in rent on a $100 per month unit is easily absorbed by the renter and results in a 10% increase in income to the facility owner. Also, late fees are frequently collected when renters do not want to spend the time or energy to remove their goods.

Approximately 80% of self-storage facilities are currently “mom and pop” businesses while the growing 20% is comprised of REITs or large privately held storage operators with a national platform.

KEY POINTS:
  • The demand for self-storage is increasing: The average amount of goods consumers own is increasing, making self-storage a growth industry.
  • The self-storage industry is “recession proof”: The self-storage industry experienced high profit margins even during the recent financial crisis.
  • Self-storage is a low risk industry: The self-storage sector maintains high occupancy levels, strong cash flows and high investment returns in comparison to other real estate asset classes.