Why Invest in self storage?
Strong Historical Returns
Self Storage can be acquired at a discount to similarly classed investments while offering stronger historical returns.
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Office
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Industrial
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Retail
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Residential
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Health Care
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Loding / Resorts
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Self Storage
*Average returns from NAREIT Data 1997-2017
Peace of Mind
RECESSION RESISTANT
Most Real Estate Assets Decrease in Weak Economies. Self Storage Stays Strong. In 2008, as most REITs plummeted, Self Storage was the only REIT sector to post a positive return.
During a weak economy…
Small businesses use Self Storage instead of costly warehouses to house excess inventory, people downsize their homes and need more Self Storage space.
During a strong economy…
People buy more possessions and must store them in Self Storage, baby boomer retirees and workers are migrating to the Sun Belt, a key demographic driver that will be strong for some time.
Lower Operational Cost
Other commercial real estate assets require maintenance costs, management costs and a significant time investment.
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40-45% Breakeven Occupancy
Far below the range of other commercial real estate sectors
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Minimal Upkeep
When a tenant moves out, simply sweep out the unit
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lower capital improvement cost
No tenant calls, repair requests, tenant improvements, leasing
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No costly evictions
Less management intensive
Stable Operations
Historical Loan Default Rates for self storage are among the lowest for all property types.
buying opportunities due to
HIGHLY FRAGMENTED OWNERSHIP
Because of Self Storage’s fragmented ownership, there are multiple opportunities for investors to upgrade and aggregate properties into portfolios:
76% of Self Storage facilities are operated by “mom-and-pop” owners with just one facility! Just 17% are owned by top operators. Only 7% owned by REITS. In contrast, REITs and sophisticated operators dominate the apartment market. Individual operators own just 7% of 50-unit properties.
SUPPLY LIMITATIONS
Not In My Backyard
New projects can be difficult to get approved.
Even with a healthy existing pipeline of development, new projects are becoming more and more difficult to get approved in some jurisdictions. Many local leaders complain that Self Storage facilities don’t provide enough full-time jobs to help their local economies, they often prefer more expensive commercial real estate developments (offices, retail, etc.) due to the higher property taxes they demand.
The net result: It can be hard to get local approvals to build Self Storage facilities.
“We also remain of the opinion that new supply will have a minimal impact on the industry overall, as increasing demand will easily absorb the new supply.”
– 2017 Self Storage Almanac
Increased Demand
Competition for prime commercial land is getting more fierce every year.
The 2017 Self Storage Almanac estimates that over $1.4B in new Self Storage development is required every year to keep up with demands caused by population growth alone.
- This competition drives up property prices, making it financially harder for smaller Self Storage developers to compete.
- The biggest rival to self-storage developers: Multifamily housing developers who can readily obtain financing and can afford to pay more for available land.
“We also remain of the opinion that new supply will have a minimal impact on the industry overall, as increasing demand will easily absorb the new supply.”
– 2017 Self Storage Almanac
“A pullback in purchasing from the major REITs will present opportunities for small to mid-size investors. Regional institutional groups with private equity may fill the void, exploring secondary markets and older properties.”
– Marcus and Millichap 2017 investment outlook
Inflation Hedge
Tenants less price sensitive.
Inflation remains a real threat to fixed-income investments. Real estate is an inflation hedge with rents increasing along with inflation.
- SHORT-TERM ADVANTAGE
The short term nature of Self Storage leases provides an excellent inflation hedge in a rising interest rate environment, even more so than other sectors of commercial real estate with longer term leases. - INCREASED RENT
Self Storage month-to-month leases allow rents to increase quickly either via turnover or rent bumps for existing tenants.
Buying Opportunities everywhere
Even secondary & tertiary markets.
Demand For and Use of Self Storage is Hyper Local.
- Self Storage Users want a facility within 10 minutes from their home or business
- 75% of a facilities customer base is located within three miles (2016 Self Storage Demand Study)
- Nearly 1/3 of all customers choose a property from driving by it. Therefore, visibility and traffic counts are critical.
- Regardless of City and MSA size, people and businesses demand Self Storage that is located nearby.