Historically, self-storage as an asset class has performed well in both inflationary environments and in times of recession.
The short-term month-to-month nature of self-storage leases permits leases to be reset to market rates quicker than most other real estate leases leading to an inflation hedge. Also, the stickiness of self-storage tenants can often allow for incremental increases to a storage unit’s rent that may not be drastic enough to cause a tenant to want to remove their items and move out of the unit. Relative to other real estate asset classes, the low, predictable, and mostly fixed expenses to operate a self-storage facility mean even incremental unit rent increases can be very meaningful to the facility as a whole.
During the 2008 recession, according to multiple sources, self-storage was the only real estate asset class with positive returns. Mainstay Global stated that during the Great Recession all commercial real estate segments experienced a net annual loss of anywhere between 25 to 67% except self-storage, which actually posted a gain of 5% in 2008.
Recessions exacerbate the downsizing by both companies and consumers, often creating more need and more demand for storage solutions and is one of the main reasons self-storage is often called recession proof.
Additionally, one of the largest demand drivers for self-storage is created by people moving from one place to another. With baby boomers continuing to downsize and more millennials being priced out of home ownership, many in both categories are opting to rent and live in smaller spaces. Or in the case of baby boomers, multiple smaller spaces. All creating an increased need for storage. The increasing trend of individuals working remotely and more flexible work-from-home policies has created a greater need for a home office or more workspace and is leaving less space in their apartments or homes for their possessions fueling additional self-storage growth.
According to Forbes, it’s estimated that over 13 million people, more than 10% of US households currently rent self-storage space. Storage rental rates continue to increase and vacancy rates are near all-time lows. According to Marcus & Millichap, national vacancies are forecast to be at 6.5% by the end of 2022 down from 9.5% in 2019. National rents are up to $1.33 per square foot from $1.14 in 2019. All compelling reasons why we believe the self-storage asset class is an investment worthy of consideration now and in the future.
This article is for informational purposes only and is not a recommendation or offer to buy or sell securities. Information herein may include forward-looking statements and is for informational purposes only. Forward-looking statements, hypothetical information, or calculations, financial estimates, and targeted returns are inherently uncertain. Past performance is not indicative of future performance. None of the opinions expressed are the opinions of RealtyMogul. Advice from a securities professional is strongly advised, and we recommend that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks and tax consequences associated with any real estate investment.