Working from home and supply constraints have produced outsize returns
Ubiquitous and unremarkable, self-storage solves a deeply American problem: what to do with too much stuff. A bunch of empty rooms near a highway is not the sexiest part of a property portfolio. Yet few property assets have matched their performance lately .
One reason is more people moving house. Amid covid-19, anyone living in a house or flat with no spare rooms had to convert an existing one to a home office or gym. That meant clearing out whatever was there. Many were reluctant to bin things, especially early on when nobody knew how long self-isolation would last. The alternative was to stash it in storage. Over the past three years self-storage occupancy rates have risen from around 90% to as much as 96%.
High demand, in turn, has given landlords pricing power. Rent bumps went from around 8-9% every six months before the pandemic to as much as 35%, according to Spenser Allaway of Green Street, an advisory firm. Facilities managers can get away with this because customers tend to be “sticky”: they may shop around and choose a facility based on price and proximity, but once their stuff is in they seldom bother moving it.
Storage firms have also embraced dynamic-pricing software. Knowing up-to-the-minute market rates allows them to avoid undercharging customers. This is of a piece with the sector’s operational efficiency and with its drive to modernise. Indoor, climate-controlled facilities are becoming the norm. “The days of the old drive-up with a rickety fence and a Doberman for a security system, that’s not going to cut it anymore,” says Tim Garey of Cushman Wakefield, a property consultancy.
The last factor behind self-storage’s outperformance is constrained supply. Whereas the amount of available square footage rose by more than 15% from 2016 to 2019, labour shortages, high construction costs and supply-chain snags have limited new construction in the past few years. That may change as these bottlenecks ease. Even then, the self-storage business may slow but not collapse. As long as Americans keep buying things, they will continue to need places to put it.
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