By Bob Morris | June 18, 2014
Anyone dealing in the world of real estate investing simply cannot overlook self-storage as a sound investment opportunity. Over the past ten years, self-storage has become an established and surefire asset class with the numbers to prove it. In a recent $2.3 billion dollar exchange, Extra Space Storage and Prudential Real Estate Investors, partnered to acquire Storage USA’s 458 facilities. With a current market value of $120 billion and a steady, growing demand, self-storage is catching the interest of all kinds of investors from VC’s, to REIT owners, to owner/operators, and individual investors, such as myself.
Self-storage, as an asset class, has emerged in a big way , capturing 13% of the real estate investment market, and outperforming other popular sectors including office, warehouse, and multi-family. Furthermore, self-storage REITS have remained the strongest performing sector, completing 32 quarters of average same store outperformance. In fact, with impressive annualized returns of 18.4%, self-storage has been the highest performing REIT subsector over the past ten years. The industry itself has helped the recovering U.S. economy recapture some of the 87% of jobs lost during the recession lending further to its investor appeal as a secure and growing sector of the economy.
Self-Storage is in High Demand.
Self-storage occupancy rates in Florida have risen from 77% in 2012 to about 93% at the end of 2013 due to increased demand and a limited supply of new units coming on to the market. The market for self-storage is vast, and continues to grow for several reasons. One reason behind household consumer growth is obvious, Americans have a lot of “stuff.” In fact, nearly 9% of U.S. households rent a self-storage unit. To put that into tangible terms,
“There is 7.3 sq. ft. of self-storage space for every man, woman, and child in the nation; thus, it is physically possible that every American could stand – all at the same time – under the total canopy of self-storage roofing.” – 2013 SSA Fact Sheet
In addition to housing all of our extra “stuff,” self-storage has evolved into a solution for a variety of different purposes and types of clients. Some of the leading contributors behind the increased demand for self-storage include:
- Homeowners living in deed-restricted communities often use self-storage for boats, additional cars, and the like as their communities prohibit the storage of such items on the property itself.
- College students typically house their belongings in self-storage units when spending the summer semester away from school.
- Fueled by the technology boom, home-based businesses often require warehouse space to house all of their products. Small businesses have become a major factor in the increase of self-storage occupancy rates.
- Businesses have also increasingly utilized self-storage as many were forced to either close their doors, or downsize during the economic crisis. They too needed a place in which to house all of their excess furniture, equipment and supplies. As the economy recovers, businesses are expanding in a more innovative and strategic way, which increasingly involves the use of self-storage.
- New Supply of self-storage units has been low due to lingering financing challenges, barriers to entry, and urbanization (development has had to shift to in-fill).
We can expect that the increasing demand for self-storage will only continue to produce greater returns for those investing in this reliable sector. So goes The Rule of Supply and Demand.
I have had an opportunity to learn a great deal about this asset class and business model as I have looked into developing one of our family assets into a self-storage facility. I am now a two year member of the Florida Self Storage Association, and I would not be writing this article, if I did not feel confident enough about the stability and potential of self-storage to invest in it myself.
Bob Morris, Senior Investment Advisor with SVN Commercial Advisory Group, has been actively involved in commercial real estate for more than 20 years and has extensive personal experience in the areas of commercial property development, multi-family development, and out lot build-to-suit. He is also actively engaged in retail and office investment property analysis, acquisition, sales, leasing, and management.