Self storage helps people through challenging times and the pandemic was no exception. The industry widened its client base and gained extra appreciation from the populace. And despite increasing competition between growing numbers of storage facilities, street rates are on the up, proving that the sector is a great option for investors going forward.
We explain what makes the self storage industry special, and why, if you are an investor, you should consider it to be a very good option right now.
Self Storage Is an Industry That Steps Up to the Plate
The self storage sector rode out the economic downturn that began in 2007 comparatively well. And during the recent pandemic it was considered an essential service, with facilities staying open while other services closed, giving people who had to downsize their homes a cost-effective place to store belongings. And the industry proved its adaptability, quickly implementing the contact-free procedures and other measures required to limit person-to-person contact.
In addition, with people working from home, students having to quit campus dorms and elderly folk sometimes moving back in with relatives, living space often became cramped. For the excess belongings now getting in the way, many people found a self-storage unit was the answer. The current national average cost of storage space is about $1.4/sq. ft. — compare that with the price of residential or office space where you live! So, a successful temporary solution, and one that can easily become a permanent fixture.
Self Storage Is a Sector Gaining Appreciation and a Wider Client Base
Much of the self storage industry’s business is generated by people experiencing life-changing events, and the prevalence of these was not diminished by the pandemic. People who had never rented a storage unit before started needing one, whether for extra belongings that didn’t fit in their new, smaller, homes or for inherited possessions that were also surplus to requirements. As a result, the industry gained increased appreciation, and among a wider range of people.
Businesses also found themselves leaving buildings as shops and other places could no longer be visited. Saleable items — plus products still being manufactured for future buyers — could be moved into storage units. And when offices closed, some companies saved money by moving the furniture out of their high-rent bureaus and into a storage locker. Better than a warehouse, these units could be chosen to exactly provide the space and atmospheric conditions required for the stored items. Some businesses can even be run in large part from a storage facility.
Self-Storage Is Competitive But Demand Is Strong
The US self storage sector now offers more than 1.5B square feet of space, with almost 0.3B having been built in the 10 years up to 2020, an increase of almost 25% over that period. Investors clearly found that self storage was a reliably profitable real estate sector and developers responded accordingly. And because it is a ‘3-mile business’ — used by people who like to have this service very close to home — new markets can generally be found at a neighborhood level. Increased competition has become a reality, however.
Some storage operators reported strong competition as 2020 drew to a close. When the pandemic first struck and people stopped leaving their homes, many storage operators dropped their street rates and offered special deals to maintain occupancy rates at their facilities and stay in the game. However, demand was also reported to be strong, and by the end of last year, the national average street rates for the most popular unit sizes were already showing parity or small increases year-over-year.
The Future of Self Storage Looks Healthy
The momentum begun in 2020 has continued vigorously into this year. By the end of July 2021, the industry was clearly demonstrating confidence, with the national average rent for a standard 10’x10’ unit being $127, up about 7% from the end of 2020 and up 10% from 12 months earlier, per Yardi Matrix figures. Other popular unit sizes — and the climate-controlled version of the ‘standard’ size — all demonstrate similar trends.
Trends fueled by the pandemic include a preference for working from home, with no fewer than 84% of workers now wanting a flexible arrangement from employers — and perhaps also longer term leases on their storage units to keep their home offices uncluttered. And there will still be people who unfortunately have to downsize and need a temporary overflow for their belongings. Positive changes in the labor market and unemployment rates should translate into advantages for the self storage sector.
The self storage industry has performed well during the pandemic and it looks as if this will continue — renting a storage unit alleviates conditions which are not going to disappear all of a sudden. Investors have realized the distinct advantages of the industry, resulting in its rapid expansion and increased competition. But the very healthy growth in street rates this year proves that if you decide to invest in this sector you should see not only a good ROI but also increased stability in your portfolio.
