2023 Self-Storage Sector Update
The self-storage sector moderated in H1 2023 after record highs in 2022, which is attributed to numerous factors, including a deceleration in rent growth and occupancy. However, despite economic headwinds, positive market fundamentals and steady demand trends continue to attract investors. The sector is still seeing tremendous growth, which is reflected by the number of people utilizing self-storage, increasing to 14.5 million in 2022, up by 970,000 since 2020, according to YardiMatrix. Additionally, investors remain optimistic about the sector thanks to its resilience factor, which points to much more favorable risk-adjusted returns for the sector as we head into the final quarter. In flourishing economies, consumers buy more goods, which leads to the need for storage, and in trying economic times, residents tend to downsize, which leads to the need for storage. Additionally, demand remains high as baby boomers exit the workforce and navigate the fixed-income lifestyle, which pushes the need for downsizing. Overall, numerous factors cushion the self-storage sector, positioning it for tremendous growth and profitability in the coming year.
“Over a recent nine-year span, self-storage facility owners across the United States saw an annual return on their investments of almost 17%,” -Real Estate Daily News.
Street Rates and Construction
As of July 2023, for a 10×10 non-climate-controlled unit, the national street rate is $134 per month, unchanged from the May average, according to YardiMatrix. The street rate growth for 10×10 unit types also continued to be negative YOY. Self-storage’s seasonal slowdown is not hindering the sector’s supply, as more than 4,750 properties are currently under development. The pipeline segment that is currently under construction makes up 3.6% of the total existing inventory. The new supply is exciting many operators, and projects are expected to be completed in late 2023. However, a moderate dispersal of new properties is preferable, as demand will be able to stay in line with supply. Overall, 98.2 million square feet of storage will come on the market throughout the U.S. in 2023, according to StorageCafe.
Trend: Self-Storage Pivots to Tend to Millennials
The millennial population prefers residing in cities, driving the demand for self-storage units. The lack of space in apartment units leads many residents to seek alternative storage options. For example, in New York, the average one-bedroom apartment is 866 square feet, and Los Angeles averages 789 square feet, according to RentCafe. Additionally, since this age group enjoys a technologically advanced experience, self-storage operators are pivoting business practices to meet the demands of new tenants. Examples of this are self-storage in-store kiosks, as used by Store Space, which substitute in-person services for a self-serve experience. These kiosks reduce operating costs, provide 24/7 customer service, and allow users to move in or out with ease, improving customer satisfaction.
Trend: Using Storage Units to Run E-Commerce Businesses
As the modern-day shopper prefers ordering online, the demand for space to store products increases. Additionally, the pandemic pushed many people to start their own businesses at home, ranging from athletic wear, furniture, self-care products, and food delivery. Since utilizing a storage unit is far cheaper than a warehouse space, many up-and-coming e-commerce businesses look to renting storage units to carry out their orders. Although not all kinds of companies can be run from a self-storage unit, many can utilize the space for inventory or store supplies that do not fit in a home or apartment unit.
Top Players in Self-Storage
The largest self-storage operators in the U.S. by number of facilities include:
- Extra Space Storage (recent acquisition of Life Storage)
- Public Storage
- Cube Smart
- National Storage Affiliates
Most In-Demand Cities for Self-Storage
- New York, NY
- Houston, TX
- San Antonio, TX
- Miami, FL
- Phoenix, AZ