Is Investing in Self Storage a Good Hedge Against Inflation?
Hedge Against Inflation
Inflation was one of the biggest stories of 2022. American consumers have been enduring price increases the likes of which they hadn’t seen since the late 1970s and early 1980s.
The Consumer Price Index (CPI) has remained relatively elevated. October’s CPI at 7.7 percent showed a slight decrease from 8.2 percent in the previous month. Some observers argue that this downward trend will hold as we enter the new year. On the other hand, a few economists stress that we’ve reached peak inflation thanks to the Federal Reserve’s interest rate hikes.
What is Inflation?
Inflation translates to a loss of purchasing power. This impacts the cost of living for the public and ultimately leads to a slowdown in economic growth. According to Investopedia, the consensus view among economists is that sustained inflation occurs when a nation’s money supply growth outpaces economic growth.
With inflation potentially on the rise, people are for investments that will perform well in the current climate. Self storage is a unique asset class that provides a stable cash flow, passive income, and long-term appreciation opportunities.
Why is Self Storage a Good Hedge Against Inflation
Self storage is an excellent investment option as a hedge against inflation. Even when the economy is impacted negatively, self-storage is historically recession resistant. When the market crashed in 2008-2009 due to the housing crisis most of the REITs had a 2.5% decrease in revenue year over year. All other businesses dropped 40% to 50% in revenue.
During the pandemic, self storage took less of a hit than other commercial real estate classes and operations remained stable if not slightly up.
From January 2021 to January 2022 Covid-19 forced many Americans to downsize and/or relocate, and businesses began leaning toward remote and hybrid work environments. These factors have had people searching for a secure place to store their belongings while they figure out their next move.
Self-storage provides investors with a stable income stream, low maintenance, and low operating costs compared to other types of real estate assets. Moving to more conservative investments like self-storage offers investors more stability than traditional investments the stock market.
If you have further questions or want more details on self storage investment, contact Pinnacle Storage Properties.
The self storage industry has grown both in level and diversity of investment. While the traditional self storage investors have been REITS and high-net-worth individuals, large private equity firms are moving capital into the self storage industry. This activity fuels higher sales prices and elevated acquisition activity.
Over 10% of households in the U.S. currently use a self storage unit. According to the Self Storage Association, the majority of these tenants live in single-family homes with a garage. Thirty-three percent of them have a basement. Yet, they still need the extra space that a self storage unit provides.
As mentioned above, the past several years have had people scrambling to find storage space. They need places to store household goods and business inventory while their trying to navigate a return to normal.
The majority of self-storage customers rent for the long-term. Only about 16 percent of storage tenants rent for less than a year. Fifty-two percent of those surveyed report that they’ve kept their storage unit for an entire year or more.
Attractive Return on Investment (ROI)
ROI and compound annual growth rate for the self storage industry are forecasted to increase over the next five years. Self storage ROI has been outperforming retail, office, apartment, and industrial spaces since 2009. According to Green Street Advisors, even during the pandemic, self storage was down only 16% compared to strip mall (down 24%) and multi-family (down 23%) investments.
Passive Income and Tax Benefits
Self storage is a great source of supplementary income. As a passive investor, you don’t have to put any time or energy into understanding self storage operations. You can relax, collect passive income, and reap additional tax benefits stemming from real estate investment. Consult a professional tax advisor to get more information on the potential tax advantages.
In conclusion, given the instability of the economy and the inflationary climate, people need to determine which investments will perform well. Self storage provides a stable cash flow, tax benefits, and long-term appreciation opportunities.