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Self-storage: It’s not like other sectors
Storage is unlike most other real estate sectors in that it thrives on change rather than economic growth. Its demand drivers rely on demographics and life transitions, uniquely positioning the self-storage sector to outperform throughout multiple real estate cycles.
The sector offers a desirable property type
A self-storage property rents individual units that occupy a 10x10 space (100 sq. ft.) for about $130, on average.1 Rents vary significantly depending on unit size, facility conditions, climate controls and location.
The sector takes advantage of its inherent non-cyclical demand drivers, low cap-ex burden and low risk of obsolescence. The percentage of U.S. households using storage has grown from 9% in 2005 to 11% in 2022. Since the pandemic, the total number of renter households has grown by nearly one million to reach 14.5 million, and durations of stays have remained 10% longer.2
Self-storage has a sticky tenant base
Consumers experiencing major life events drive demand, and renters typically renew leases at least once. Households constitute 79% of renters, with the remainder made up of commercial users such as retailers needing extra inventory space or gig workers storing equipment.3
In the early 2010s, it was thought that millennials would be less keen on using self-storage due to shifting preferences toward owning fewer physical goods. However, millennials now make up 34% of the consumer base, even more than baby boomers.3
The sector’s income profile is relatively resilient
Month-to-month leasing allows sophisticated management groups to raise rents more frequently, providing a hedge against inflation and creating strong rent growth. The cost of maintaining a real estate asset is a major drag on returns, but these costs for storage are among the lowest of any real estate sector.
Self-storage units have more inelastic demand relative to other real estate sectors, since they are a small dollar cost necessity during life events. Given the sector’s inherent non-cyclical demand drivers, self-storage is considered a defensive property type and has ultimately outperformed traditional sectors over multiple real estate cycles.
1 Yardi Matrix, March 2023.
2 Green Street, 2023.
3 Self-Storage Almanac, 2022.
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