Every asset class has unique and specific features that must be taken into consideration when selecting an appropriate investment vehicle. Self-storage is no exception as it has many exceptional characteristics and can provide great returns.
Here are the top 4 aspects that make this commercial real estate category stand out on its own:
4 REASONS WHY WE LOVE SELF-STORAGE
1. Consumer Spending Continues to Rise: The U.S. economy has and continues to rely heavily on consumer spending which in recent years has contributed to over 70% of the U.S. GDP. Consumers continue to buy “things” and with that comes the need for space to store their belongings. It is estimated that nearly 10% of Americans households currently rent a self-storage unit.
2. Demand For Self-Storage Increases During Volatile Times: It is common during a recession and economic downturn for more people to go through foreclosure, change in employment, downsizing and moving home from college, all of which increase the demand for self-storage facilities. Historically speaking, during the last recession in 2008-2009, self-storage facilities were able to perform positively due to this increase in demand. For example, self-storage REIT’s provided a positive 5.1% return during 2008 compared to general REIT’s which posted a negative return of 38%.
3. Ability to Greatly Increase Rental Rates: Once a tenant moves into a self-storage space it is relatively easy to increase gross rents because the cost to move their belongings is much higher than the rental increase. A 6% rental increase is not uncommon and often will not deter tenants since the average monthly rent for a 10x10 climate controlled space is in the neighborhood of $100/mth. A 6% rental increase for a self-storage facility results in a significant increase in asset valuation all without much risk of vacancy. In addition most tenants are on a month to month lease allowing great flexibility to raise rents without having to wait for long leases to expire.
4. Low Development, Operating & Maintenance Costs: The operating costs on self-storage facilities tend to be lower than many other asset classes. Self-storage facilities do not require a large staff to operate and maintain an efficient facility. For example a 500+ unit facility can be effectively managed with only 1-2 employees. Many facilities are now being ran as a fully automated operation which equates to less staff needed on premises and lower overhead costs. Lastly, operating maintenance costs are low, storage units are often built with concrete and lightweight metal, and they have little to no plumbing nor interior finishes that can get damaged. This type of construction makes the cost to add additional storage units to a facility significantly less than most other asset classes.