The self-storage sector witnessed a significant surge in institutional popularity over the past decade. Although REITs dabbled in self-storage for some time, the past several years have brought a flood of established investors. A combination of rising consumer popularity and a cost-friendly business model ramped up investor demand.
Traditionally, the self-storage market maintained a mom-and-pop operation—especially in smaller markets across America—following a cyclical pattern with increased activity during the second and third quarters, which align with school schedules and summer moving trends. However, the Covid-19 pandemic accelerated some already-emerging trends and flipped the sector on its head. With a shift to a remote work and school lifestyle, consumers are moving and storing year-round. City renters are back in the suburbs and countryside, leaving their furniture in storage.
Another surprising factor leading to the success of self-storage is the industrial sector boom. Many small businesses turned to self-storage for their warehousing needs because they were priced or sized out. The growing success of self-storage operations caught the attention of investors who are now buying out mom-and-pop stores everywhere. They bring technology, efficiency and a standardized approach to the revitalized sector, increasing consumer experience and renting retention.
The ready-to-use storage units are offered turn-key and available immediately. Occupancy rates are high and trending upward–currently 40 basis points above compared to this time last year. Demand is increasing prices with occupancy, as rental rates from Q1 are up to three percent higher on average than in Q1 of 2022. Additionally, compared to other real estate sectors, self-storage requires less staffing for maintenance and operation.
Competitive cap rates indicate the presence of fundamental macro drivers that point to further growth in the coming years. With new developments in the self-storage sector below the 10-year average, there is healthy demand and high occupancy rates, ensuring that the market remains stable and rent prices favorable.
There are several apparent opportunities in the self-storage sector. The Western market is experiencing significant growth, driven by the need for climate-controlled facilities in hot regions like the Southwest and the population exodus from California. Urban areas are also prime locations due to the limited availability of larger properties, creating a need for additional storage space. There is even an option to convert suburban office space into self-storage facilities.
The fundamentals and long-term outlook on self-storage remain extremely positive. The sector’s advantages, rising rental rates, low completions and various growth opportunities, indicate a promising future.
- Richter, J. (2019, September 25). Real Estate Daily Beat. Daily Beat NY. Retrieved June 16, 2023, from www.dailybeatny.com
- Stribling, D. (2023, March 5). The Pandemic Boom Over, Self-Storage Returns To Steady Growth. Retrieved June 16, 2023, from www.bisnow.com