According to the Square Foot Storage Beat, as of November 2015 there were 54,009 self-storage facilities in the United States, approximately 2.63 billion square feet. Who is renting all of this storage space? A recent article at ISS provides a helpful breakdown of the industry customers:
- Decluttering: These customers want to get organized and clean out their living space, but aren’t ready to cut ties with their treasures.
- Life transition: These customers are going through big life events such as marriage, divorce or death of a loved one.
- Hobbies: From athletes to artists, these customers’ recreational activities require additional space for equipment, gear and supplies.
- Downsizing: This category includes empty-nesters or folks who simply want to scale back and need a place to store everything.
- Renovation: These customers need a safe place to store their belongings while undergoing home improvements.
According to National Real Estate Investor, March 2016, returns for properties in the self-storage sector hit 10 percent in the fourth quarter of 2015 and projected supply shortages are expected to lock-in higher rents and occupancy going forward. Major self-storage REITs have all experienced increased occupancy since year-end 2014, with net operating income (NOI) growth moving from 7.8 percent to 11.5 percent, according to an analysis by Chicago-based firm MJ Real Estate Services.
According to Aaron Swerdlin, the executive managing director at real estate services firm NGKF (as reported by the National Real Estate Investor): “A decade ago, there would be about 3,000 new facilities under construction each year—today, there are only about 600 properties in development. There will likely be only about 400 properties completed each year for the next three to five years. New supply will easily meet demand, with no overbuilding in sight. With fewer new properties, a low homeownership rate and apartment renting at record levels, there’s no reason that the self-storage industry shouldn’t continue to outperform the overall REIT markets.”
Demand for self-storage services is driven by population growth and consumer spending. The profitability of individual companies depends on marketing and pricing. Large companies enjoy economies of scale in administration, marketing, and purchasing and are often better able to finance acquisitions. Small companies can compete by specializing in local markets or by offering niche services.
Major services consist of providing units of varying sizes for storage of customers' personal or business belongings. About half of storage units are climate-controlled. Many companies provide storage space for large items such as cars, boats, and RVs; some larger companies offer products such as packing and moving supplies. Facilities vary in size, but an average facility covers more than 45,000 square feet, according to the Self-storage Association (SSA).
Self-storage is unique in the commercial real estate industry. Unlike retail, there are no anchor tenants to induce demand. Unlike office, there are no tenant improvements to entice tenants. Demand for self-storage space is entirely driven by local demographics, usually within a 3 mile radius.
- U.S. self-storage facilities pay a total of more than $3.25 billion in property taxes to local government jurisdictions.
- The distribution of U.S. self-storage facilities (Q2-2015) is as follows: 32% urban, 52% suburban and 16% rural.
- The average revenue per square foot varies from facility to facility. Industry averages as of Q2 2015 are $1.25 PSF for a non-climate controlled 10 x 10 unit and $1.60 PSF for a climate controlled 10 x 10 unit.
- Occupancy rates for self-storage facilities as of Q2-2015 were 90% (percentage of units rented per facility) up from 86.8% at year-end 2013.
- 9.5% of all American households currently rent a self-storage unit (10.85 million of the 113.3 million US HHs in 2013; that has increased from 1 in 17 US HHs (6%) in 1995 (18 years ago).
- The average (mean) size of a “primary” self-storage facility in the US is approximately 56,900 square feet.
- Of over 10,000 facilities surveyed, approximately 6,000 are single-story facilities and approximately 4,000 are multi-story facilities.
- Of over 10,000 facilities surveyed, the mean facility size is 546 units and the median facility size is 517 units.
- Of over 10,000 facilities surveyed, 18.7% offer Boat / RV parking and/or storage.
- Of over 10,000 facilities surveyed, 31% offer truck rental.
- Some 65% of all self-storage renters have a garage but still rent a unit; 47% have an attic in their home; and 33% have a basement.
- Some 47% of all self-storage renters have an annual household income of less than $50,000 per year; 63% have an annual household income of less than $75,000 per year.
- 83.9% of all US counties have at least one “primary” self-storage facility
About the Authors: Kirby Snideman is an AICP certified planning professional with a focus in economic development and currently serves as a senior market analyst and project manager at CDS. Originally from Houston, Mr. Snideman has lived, studied, and worked in several places including Utah, New York, California, Iowa, Illinois, Oregon, and London, England. Brenda G Crenshaw is Vice President of CDS Community Development Strategies. She specializes in office, retail, industrial, multi-family, condominium and student housing analysis.