Introduction to Self-Storage Properties
Self-storage properties are designed to house numerous individual storage units of various sizes. This sector is thriving, with its market value projected to exceed $64 billion by 2026. Individuals and businesses rent these units to store items ranging from furniture and clothing to business records and inventory.
Key Reasons for Using Self-Storage
- Moving
- Lack of space at home
- Changes in household size
- Downsizing
- Business purposes
Why Investors are Drawn to Self-Storage
Steady Income The self-storage industry promises a consistent income stream. Demand for storage units surged to 14.5 million in 2022, an increase of 970,000 from 2020. Owners have enjoyed an impressive annual return on investment of nearly 17% over nine years.
Recession Resistance Self-storage real estate is notably resilient during economic downturns. During the pandemic, warehousing revenue rose steadily, with occupancy averaging 96.5% in Q3 2021, up from 91.5% in Q1 2020. Even during the 2008 Great Recession, self-storage showed a positive return of 5% while most REITs suffered losses.
Lower Operating Costs Operating costs for storage units are relatively low, typically around 35% of revenue. These spaces experience less wear and tear than apartments, offices, or commercial properties and have fewer amenities. Property taxes account for nearly one-third of property expenses on average.
Stable Cash Flow With many small units, the loss of a single tenant has minimal impact on cash flow. Vacant units can be quickly readied for new tenants, avoiding the renovation costs and time required for other property types.
Advantageous Leases Month-to-month leases allow landlords to adjust rates swiftly in response to market conditions. Automatic credit card or ACH billing reduces default risks. Evictions, though undesirable, are generally simpler and quicker than for apartments or commercial tenants, with the potential to recoup losses through lien auctions of unit contents.
Challenges in Self-Storage Investment
Market Saturation A major risk is oversupply. Thorough market analysis is crucial to avoid investing in saturated areas, which can occur due to excessive new construction or a surge in institutional investments.
Management Requirements Despite fewer management tasks compared to residential properties, self-storage facilities still require onsite staff to manage access, assist customers, and maintain equipment. On average, U.S. facilities employ 3.5 staff members each.
Security Needs Facilities must have robust security measures, including access control and video surveillance. Units should be constructed with reinforced walls and doors, and tenants typically provide their own locks to enhance security.
Conclusion
Investing in self-storage real estate can be highly rewarding, offering recession-resistant demand, stable cash flow, and low operating costs. However, it requires diligent market research, effective management, and stringent security measures. With careful planning and a realistic understanding of the sector’s challenges, investors can capitalize on the growing demand for self-storage facilities.