The Self-Storage Market by the Numbers
Commercial Real Estate
Consumers continue to find themselves constrained by the space inside their homes and to utilize self-storage facilities. This continued demand will likely result in growth in this property market after expansion in 2014, according to real estate brokerage firm Marcus & Millichap in its National Self-Storage Research Report.
"To date, the robust performance of self-storage properties is primarily driven by growing space demand," states the report. "After hunkering down during the recession, U.S. consumers are clearly back in an accumulation phase, buying new things that will inevitably relegate older possessions to self-storage spaces around the country."
With more demand for self-storage facilities, investors should keep in mind these figures describing the state of the market:
Occupancy levels in the self-storage sector was a record-breaking average of more than 90 percent in 2014, National Real Estate Investor reported. With occupancy levels hovering around all-time highs, investors are now considering self-storage more as an attractive asset class than in the past. R. Christian Sonne, executive managing director in real estate investment firm Cushman & Wakefield Inc.'s self-storage industry group, said there was significant investor competition to purchase self-storage facilities last year.
"Self-storage is now legit, it's not anymore like that odd business model that nobody really understood,"Sonne said, according to National Real Estate Investor. "We've had entities from family money to equity firms and hedge funds jumping into the sector, which is now considered at least core, if not core-plus."
With more investors looking at self-storage as an asset with great returns, they could attempt to diversify their portfolios by acquiring additional self-storage properties. Sonne said buyer competition was high for single assets and portfolios for the self-storage market in the third quarter of 2014.
The report by Sonne for Cushman & Wakefield noted that investors are optimistic about investments in the self-storage industry in 2015 as they look forward to a solid stream of cash flow. This positive outlook was evidenced by a rise in market rent change rates. The report found the average rent change for the domestic self-storage market was 3.5 percent in the second half of 2014, the same rate as in the first half of 2014 but higher than the 3.25 percent experienced in the second half of 2013.
In 2013, there were an estimated 25 million self-storage units in the U.S., according to a report by Aegon Realty. With more people renting and not having enough space for their belongings, there could be a higher demand for self-storage facilities. Investors anticipating greater demand for these properties could purchase facilities in areas where there is also a high concentration of multifamily apartments. The report revealed 1 in 10 families rent a self-storage unit in the U.S., up from 1 in 17 in 1995.
The Aegon Realty report also showed slightly more than half (51%) of self-storage renter households made about $50,000 each year or over. This indicated that the incomes of self-storage facility tenants are becoming more diversified, which could mean a bigger market for self-storage operators. The report also revealed about 15 percent of tenants have a household annual income of $125,000 or more.
Investors have the option of putting money in real estate investment trusts, which could yield high returns. Citing data from to the National Association of Real Estate Investment Trusts, the Aegon Realty report said the self-storage sector had an annual return of 20.5 percent between 2009 and 2013 - higher than any other property type, including retail and apartments. The annual return for self-storage properties rose from the previous period's average annual return of 19.3 percent from 2003 and 2008.
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