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Real Estate
Overflow...the growth of self-storage
It’s a familiar problem: overflowing closets, packed garages and bedrooms transforming into home offices. Where do we put all that extra stuff? No wonder self-storage has been one of the best performing real estate sectors over the past several decades.
As one of the world’s largest private owners of self-storage facilities, Nuveen has acquired more than $1 billion of self-storage assets across the firm since the beginning of 2020 alone.
Why do we like the sector?
Uncorrelated to economic cycles
Consumer demand for self-storage has never been higher. The sector’s income growth is quite resilient, in part because its demand drivers are non-cyclical and uncorrelated to the economy. Sector performance has remained strong throughout market cycles, even performing exceptionally well during the pandemic.
Going forward, the sector is projected to continue outperforming due to its favorable growth forecast and low cap-ex profile relative to traditional sectors.
Benefits from economies of scale
Self-storage is one of the few property types that takes advantage of real economies of scale. Institutional managers have a considerable edge over their smaller peers because they:
- Operate sophisticated revenue management systems that drive revenue
- Market at scale to save costs and increase tenant traffic
- Use capital to maintain high-quality facilities
Monthly leases create an inflation hedge, as management groups can adjust rents more frequently than other tenant contracts. Additionally, self-storage facilities require limited ongoing capital expenditure to maintain. This is attractive, as cap-ex is one of the biggest drags on prospective returns.
64% of the self-storage currently under construction is concentrated in the top 50 U.S. markets1
Opportunities arise in smaller, overlooked markets
Institutional managers are continually challenged to find new opportunities at a reasonable price. Secondary and tertiary markets, like smaller cities in the Sun Belt and Midwest, may offer opportunities because they benefit from:
- Less operating competition from large national players
- More opportunities to buy from mom-and-pop sellers
- Less expected future supply
The large public REITs are concentrated in the top 25 markets, and most new developments nationally target primary markets.
However, half of the self-storage industry is still owned and operated by smaller groups. The average individual self-storage asset is relatively small, at about $10 million. It takes a great deal of work to acquire assets on a one-off basis, so many institutional managers are willing to pay a premium for larger, multi-building portfolios.
We are working to build value for shareholders by aggregating smaller assets into regional or national portfolios that take advantage of economies of scale. Market data has shown that such portfolios may trade 20% to 25% higher versus assets transacted on an individual basis.2
Nuveen remains focused on accessing the sector in a way that drives investor value and acquires high-quality, long-term assets. We believe self-storage has the potential to help drive performance and income for our real estate investors for years to come.
In this issue
Technology and innovation improve the buildings Nuveen owns while enhancing their value and potential income for our clients.
Our research team analyzed more than 4,000 cities and identified the top 2% we believe are most attractive to people and businesses, today and in the future.
For years, investors have held steady on their reasons to allocate to private real estate: return potential, income, volatility management, inflation hedging and diversification.
Endnotes
1Data source: Radius+, July 2022.
2Data source: CoStar, July 2022.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.
Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance does not predict or guarantee future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.
Important information on risk
Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well. Real estate investments are subject to various risks, including fluctuations in property values, higher expenses or lower income than expected, and potential environmental problems and liability. Please consider all risks carefully prior to investing in any particular strategy. A portfolio’s concentration in the real estate sector makes it subject to greater risk and volatility than other portfolios that are more diversified and its value may be substantially affected by economic events in the real estate industry. International investing involves risks, including risks related to foreign currency, limited liquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic or other developments.
Nuveen provides investment advisory services through its investment specialists.
This information does not constitute investment research as defined under MiFID.
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