Investing in self-storage has become a popular option in the commercial real estate market due to its attractive returns and numerous advantages. Self-storage facilities provide a secure space for people to store their belongings during various life events such as relocations, home staging, travel, downsizing, and educational pursuits. This makes it a steady sector that is constantly in demand. Unlike multifamily investments, self-storage investments do not involve tenant-related concerns. Therefore, this market offers investors a streamlined avenue to achieve profitable returns on their investments.
Is Self-Storage a Good Investment?
The self-storage industry has experienced steady growth due to changing consumer behaviors and market demands. Below are additional reasons why self-storage is an appealing choice.
Consistent Demand
The self-storage industry experiences a consistent demand for storage space throughout the year. This demand is driven by various reasons such as downsizing, moving, or simply wanting more storage space. As a result, the industry has a stable flow of clients, which reduces the risk of vacancies and makes it an attractive investment option. In 2022, the industry achieved an impressive average occupancy rate of 92 percent nationwide.
Limited Competition
Moreover, the self-storage sector has limited competition in many places, making it an attractive investment opportunity for smaller investors. Although there are significant players in the industry, there are still numerous opportunities for smaller investors to enter the market and build profitable storage facilities. The SelfStorage Almanac of 2023 estimates that over 51,000 storage facilities are currently operating in the United States. Of these, six public companies own approximately 36.6 percent of the self-storage space based on rentable square footage. The remaining self-storage space is owned by operators (22.4 percent) and private investors (41 percent).
Strong Cash Flow
Self-storage assets can be a lucrative investment due to their strong cash flow and lower operating costs. Monthly payments collected from tenants and relatively low operating expense ratios contribute to significant cash flow. Moreover, month-to-month leases allow for owners to increase rental rates periodically on existing tenants, providing an opportunity to continuously grow top line revenue.
Lower Operating Costs
Operating a self-storage facility is relatively straightforward. Investors can benefit from self-storage as it provides a hassle-free means of generating investment returns. The expenses associated with operating these facilities typically range from 30% to 40% of Effective Gross Income, depending on the size and location of the facility. These costs primarily include utilities, payroll, site maintenance, and marketing.
Recession-Resistant Investment
Moreover, self-storage can be a recession-resistant investment. During economic downturns, when other industries may experience increased vacancies or lower rental rates, self-storage has historically remained consistent. In fact, as individuals and organizations downsize or suffer temporary financial restraints, the demand for storage space can even increase during difficult times.
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