Is the Self Storage Industry Still Hot?
By Alyssa Browning
The self storage industry has been one of the hottest industries in commercial real estate recently. In fact, self storage has had the most growth in commercial real estate in the last 40 years compared to any other industry (Nead, N., n.d.). The question is: is the self storage industry still hot? The short answer to this question is yes. The longer answer considers expected growth rates and markets that have the most and least expected growth. The longer answer also considers whether or not demand is keeping up with supply, and what you can expect in terms of construction in the industry.
To begin, the self storage industry is expected to grow. The expected growth is 2.9% through 2020 (Nead, N., n.d.). Some of the areas expected to have the largest growth are Dallas, Denver, and Miami. These three cities are the top economies for self storage of the top twenty five Metropolitan Statistical Areas (S, n.d.). However, with growth comes other issues. One thing that owners can expect to see is a decrease in the construction of facilities in 2019 due to increased costs associated with building (Young, C., n.d.). What’s interesting about the expected decrease in construction is that currently, approximately 9.6% of “existing” storage facilities are under construction or in the planning phase (G., n.d.). You have to ask yourself “will these facilities actually be built, or will they fall under the radar with the increasing costs”?
Another area for consideration is purchasing a facility. Interest rates were raised four times during 2018 and they are projected to increase as many or more times during 2019 (G., n.d.). With the increased cost of financing and the decrease in operations margins, many of the larger markets such as Portland, Nashville, and Seattle are expected to see a decrease in investment activity (G., n.d.). However, some of the smaller markets may still see an increase in 2019. Another issue with purchasing a facility is the gap between seller prices and buyer prices. This gap is increasing the time it takes to close on a facility (Marcus & Millichap Research Services, n.d.).
When talking about the growth of the industry the question of supply and demand often comes into play. Currently, demand is not keeping up with supply, but the industry is expected to be floated by Generation Z, the Baby Boomers, and the Millenials (G., n.d.). With these age cohorts, downsizing is a common trend that increases the need for storage. In fact, the number of searches for self storage continues to increase. The total increase was four percent in 2018. This number is expected to continue increasing into 2019 (G., n.d.). In addition to three generations floating the industry, small business is also expected to help float self storage (Marcus & Millichap Research Services, n.d.). The tax cuts for small business encourage those businesses to expand. In turn, it creates more of a demand for self storage (Marcus & Millichap Research Services, n.d.).
Overall, self storage is one of the strongest industries in commercial real estate. There is expected growth for the industry. However, there are also expected changes.
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