Self Storage Continues to Thrive and Remains Recession Resistant
According to an article in the New York Post, a survey by the Pew Research Center states that “96% of Americans are ‘very’ or ‘somewhat’ concerned about the rising prices of food and other consumer goods. Almost the same percentage of respondents (94%) said they were very or somewhat concerned about rising prices for gas and other energy, while 87% said the same about the cost of housing.”
Despite the overall pessimism concerning the second half of 2022, the self storage industry is projected to enjoy continued meteoric growth. According to an article in REJournals, while other real estate asset classes, even those previously considered stable, took heavy hits during the pandemic, self storage is expected to register a compound annual growth rate of 5.45% from 2021 to 2026.
What is keeping self storage a thriving industry? Why is self-storage investment attracting single-family, multifamily, and other real estate investors looking for an alternate vehicle to increase their wealth? Here are a few of the reasons that self storage is a stable and lucrative investment opportunity.
Why Self Storage Continues to Thrive, Remaining Recession Resistant
There are a few key reasons why self storage is recession-resistant. It goes far beyond the 4 Ds of the self storage industry: Death, Divorce, Downsizing, and Dislocation.
Back in the day, self storage brought to mind shabby properties on the outskirts of town. Security was dubious at best, and good customer service was, indeed, a work in progress.
As the industry grew, self storage became a unique asset class that provided a stable cash flow, passive income, and long-term appreciation opportunities. Many of today’s facilities are upscale, technology-rich businesses with architecture that reflects the surrounding communities. They boast top-of-the-line security and a concierge-level management staff that provides a streamlined self storage experience to meet the expectations of their customers.
Self Storage Thrives Because of the Residual Effects of the Past Two Years
More and more businesses are opting for hybrid or remote work styles. The demand for self storage was driven by business owners re-evaluating the need for office space and brick-and-mortar stores. Many of these owners are downsizing or abandoning office and retail spaces altogether, prompting the need for extra storage space.
Self storage is also booming on the residential side. Remote work is forcing families to transition an area of their home to office space. Self storage is the perfect solution for those extra household items.
During the pandemic, people lost their businesses and their incomes. When this kind of downsizing is forced on them, people still want to be able to keep their possessions. Again, self storage comes to the rescue. When the economy is healthy again, businesses will grow, larger homes will be purchased, and shopping will resume in full force. Families will need storage space for the overflow that will come with a healthy economy.
In one way or another, there is an unfailing need for self storage.
Self Storage Thrives Because Generational Norms are Changing
Generational shifts are another factor in the growth of the self storage industry. Baby Boomers and millennials are turning to more affordable lifestyles by retiring and relocating to the Midwest, increasing storage demand in this area.
As Baby Boomers retire, many will have to navigate a lower-income lifestyle against rapidly increasing costs. Whether due to age or income, many people in this generation will have to downsize, driving up the demand for self storage. The older generation traditionally moved to places like Texas and Florida, but as costs continue to soar retirees are more likely to move to the more affordable midwest.
Millennials, on the other hand, typically have a preference for urban living. As they flock to popular urban areas, they’ll find that living spaces are small and expensive. Self storage is the economical alternative to larger, more costly living spaces. They can store their overflow in the hopes that they will eventually move up to a larger home. When this group discovers that it is expensive to maintain a high standard of living in their preferred areas, the midwest becomes their choice for affordable housing.
Self Storage Stability is Driving Investment
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, but the reality is that all other businesses dropped 40% to 50% in revenue. Additionally, during the pandemic, self storage took less of a hit than other commercial real estate classes and operations remained stable if not slightly up.
Self-storage provides investors with a stable, predictable 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 in stocks. 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.
Self Storage Embraces Technology and Innovation
The self storage industry is quick to embrace new technology opportunities. The younger generation, as well as more and more older people, expect a technology-rich and responsive experience. The self storage industry is evolving to meet the demand. Online rental, self-serve kiosks, and smart-entry cloud-based technology can be integrated to streamline tenant services. Tenant’s can make a payment or send a message to the manager in the same app. Smart entry and smart storage units can be easily integrated as part of a complete security system.
Investors and consumers agree: self-storage continues to experience extraordinary growth. Industry numbers have shown record-setting increases, and occupancy and rental rates are both at all-time highs, with available capital continuing to fuel the development of this commercial real estate sector. Self storage continues to thrive and remains recession-resistant because the industry continues to evolve, meeting the expectations of owners and consumers alike.
If you have further questions or want more details on self storage investment, contact Pinnacle Storage Properties.