2023 Self-Storage Sector Update
The self-storage sector is moderating after record highs in 2022, which is attributed to numerous factors, including the slowdown of the housing market and rising rents keeping tenants in place. However, despite economic headwinds, the sector is still seeing tremendous growth, which is reflected by the use of 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. 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
For a 10×10 non-climate-controlled unit, the national street rate is $126 per month, a decrease from its peak of $133 recorded in the summer of 2022, according to YardiMatrix. The decrease in rent was expected, as it is normal for the sector to see a slowdown during the winter months. Self-storage’s seasonal slowdown is not hindering the sector’s supply, as there are currently north of 4,600 properties under development. The new supply is exciting many operators, and projects are expected to be completed in late 2023. However, a moderate disperse 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 customers 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 product increases. Additionally, the pandemic pushed many people to start their own business 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 businesses can be run from a self-storage unit, many can utilize the space for inventory or to store supplies that simply 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:
- Public Storage (3,310 facilities)
- Extra Space Storage (2,177 facilities)
- U-Haul (1,880 facilities)
- CubeSmart (1,289 facilities)
- National Storage Affiliates Trust (1,238 facilities)
Most In-Demand Cities for Self-Storage
- Houston, TX
- Lax Vegas, NV
- Phoenix, AZ
- New York, NY
- San Antonio, TX