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Why self storage is a hot asset

Ano one asked It’s even more dizzying to think of your favorite literary homes: Pemberley, Brideshead, Blandings, Jay Gatsby’s mansion, and more. The same goes for workplaces on TV: Los Pollos Hermanos, Dunder Mifflin, and the sleek Waystar Royco offices, for example. Ask someone to come up with their favorite fictional storage unit, and expect a blank stare (the most ardent Neil Stephenson fan might recall the one that Hiro Protagonist inhabits in “Avalanche”).

Ubiquitous and humble self-storage addresses a deeply American problem: what to do with too much stuff. A bunch of empty rooms near a freeway aren’t the sexiest part of a real estate portfolio. However, few real estate assets have matched its performance recently (see chart).

One reason is that more people are moving. (Ron Haffner, the former boss of Public Storage, the largest self-storage company, says people seek his services for the “four Ds”: death, divorce, disaster and chaos.) During covid-19, anyone living in a house can Apartments with homes or no spare rooms have had to convert existing rooms into home offices or gyms. That means clearing anything that’s in there. Many people are reluctant to throw things in the trash, especially in the early days when no one knew how long self-isolation would last. Another way is to store it in a warehouse. Over the past three years, self-storage occupancy has risen from around 90 percent to 96 percent. Demand was particularly high in Florida, Texas and the Sunbelt, where people flocked to find bigger homes and looser lockdown measures.

In turn, high demand gives landlords pricing power. Spenser Allaway of consultancy Green Street said rent increases have risen as much as 35 per cent, up from around 8 per cent to 9 per cent every six months before the pandemic. Facility managers can get away with this because customers tend to be “sticky”: they may shop around and choose a facility based on price and distance, but once their stuff arrives, they rarely bother to move it. As Stephanie Wright of New York University explains, “People tend to think, ‘I’m going to put my stuff here for a month or two,’ but the average lease is over a year.”

Storage companies have also adopted dynamic pricing software. Knowing the latest market prices allows them to avoid undercharging customers. This has to do with the industry’s operational efficiencies (small staff keeps labor costs low; getting a unit ready for a new client requires only a quick scan) and its drive to modernize. Indoor climate-controlled facilities are becoming the norm. “The days of old motorists with rickety fences and Doberman pinschers as a security system just don’t apply anymore,” said Tim Garey of Cushman Wakefield, a real estate consultancy.

The final factor in self storage’s outperformance is supply constraints. While available square footage grew by more than 15% from 2016 to 2019, labor shortages, high construction costs and supply chain hurdles have limited new construction over the past few years. This may change as these bottlenecks ease. Even so, the self-storage business may be slowing but not collapsing. As long as Americans continue to buy things, they will continue to need places to put them.

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