Self-Storage Investment Sales & Finance
Approximately 10% of Americans currently rent space in one of the 50,000 self-storage facilities scattered throughout the United States. Of the 30 million people who rent space in a self-storage facility, 70% of customers are residential, with the remaining 30% split between businesses, students, and the military. As a percentage of households, millennials have the highest usage of self-storage and rank second when it comes to total users of storage, representing nearly one-third of non-commercial self-storage demand. Millennials are also the fastest growing self-storage customer cohort and are expected to overtake baby boomers in population in 2019 as millennials grow to 73 million and Boomers decline to 72 million.
The self-storage sector has evolved over the years as the industry has grown and matured. The first-generation of self-storage properties featured rows of cookie-cutter, single-story metal buildings with bright orange roll-up doors. Today, newly constructed self-storage facilities often mirror the styles used in neighboring structures, with upscale architectural features, climate control, and detailed exterior designs that complements the surrounding landscape. In addition to the demand for enhanced facilities, strong customer service and supplementary services are a growing priority for self-storage consumers.
More than 75% of self-storage operators now report the sale of ancillary items (boxes, moving supplies, and moving trucks) and over 65% of operators sell insurance at their facilities.
In the beginning of the asset class, most self-storage facilities were independent businesses run by sole mom-and-pop proprietors. The operating efficiency and relative simplicity of running a self-storage business is one of the best in commercial real estate, where properties can break-even at sub-50% occupancy rates. With more than 26,000 single-facility owner-operators today, mom-and-pop operations remain common but the industry has experienced a shift toward management professionals. There are hundreds of midsize companies operating chains of three to 100 stores, with the majority being owner-operators. The sector’s 10 largest operators control 32% of the market (by square footage). Of the 10 largest operators, there are five REITs (CubeSmart, Extra Space Storage, Life Storage, National Storage Affiliates, and Public Storage) that own roughly 20% of the total square footage in the U.S. and approximately one-third of the total “institutional quality” market.
In 2018, the U.S. self-storage market was valued at over $37.3 billion. The market is expected to reach a value of more than $49.2 billion by 2024, with a Compound Annual Growth Rate (CAGR) of nearly 135% from 2019-2024. Self-storage sales volume in the U.S. surpassed $2.9 billion through the first three quarters of 2019 and the steady flow of deals has generated nearly $4.5 billion in volume over the past 12 months. The average price per square foot reached $89.34 in Q3 2019, up more than 29% since 2015 and the average cap rate ticked up to 7.1% in Q3 2019, up 40 basis points from the cycle low set in 2016.
As of Q2 2019 (the most recent data available), the national vacancy rate for self-storage was 12.6%, up 130 basis points from one year ago, and up 340 basis points from the cycle-low vacancy rate of 9.2% in Q2 2016. Analysts forecast that new development will outpace demand in the short-term and vacancy rates will reach a cycle high of 14.3% by year-end 2020, then decreasing to 12.7% by 2023. The growth in the self-storage sector is expected to be positive going forward, due to the trends of increased urbanization and steady demand for storage space.