Scott Meyers, Founder of Kingdom Storage Holdings.
For many years, I have supported self-storage as a great way to invest your money. In my experience, it is a recession-resistant and often overlooked way to invest. Don’t just take my word for it. Recently, StorageMart — the eighth largest self-storage company — announced Bill Gates joined forces with them as an investor.
There are several factors that are driving the self-storage industry higher, including growing urbanization, increased downsizing from the coronavirus, lifestyle changes and more. While there are many things that affect real estate performance, self-storage is influenced by the transition and trauma business. The industry often plays a role as people difficult life events. As a result, it is one of the most recession-resistant asset classes.
According to Mordor Intelligence Research, the valuation of the self-storage market reached $87.65 billion USD in 2019. By 2025, that valuation is expected to grow to $115.62 billion. This puts the compound annual growth rate (CAGR) at 134.79% over the forecast period of 2020-2025.
In addition, self-storage can withstand a recession. In looking at recent economic effects as a result of the pandemic, self-storage continues to stay afloat. A report from Trepp shows the delinquency rate on about 1700 loans for self-storage facilities to be less impacted than the delinquency rate for loans in other sectors of real estate –including hotels.
Self-storage is strong during the looming coronavirus-inspired recession due partly to urbanization. Renters need a place to store the belongings that no longer fit when their rental spaces shrink, they move home with family or choose a more nomadic lifestyle. Because of this trend, self-storage is benefiting.
Another source of demand comes from businesses. During a recession, many businesses, unfortunately, risk the loss of failing. The hope is that these businesses are able to get back on their feet. Until then, however, they need a place to store their belongings — self-storage facilities.
There are also many business leaders managing offices with their employees working from home. They are starting to realize that they can work with a much smaller office footprint. As a result, the vacancies in retail and office space are increasing and may continue to do so. In the meantime, downsizing office space can mean a need for businesses to store items.
Lifestyle changes can occur at any time. In the midst of the current pandemic, a new unfortunate change is an increase in those seeking a divorce. Compared to the same time in 2019, the number of people looking for divorces was 34% higher from March to June. Covid-19 has greatly increased downsizing, divorce, dislocation and death. Due to these unfortunate events that can take place during a recession, self-storage has acted as a necessary service people use as they navigate difficult life transitions.
Another factor supporting the success of self-storage is that the cost of development for facilities is often lower than multifamily dwellings with similar rates of rent per square rent. This helps with profit potential. One industry company shows multifamily dwellings can develop from $60-$70 per square foot while renting for between $7.50 and $12.00 per square foot. Self-storage facilities can often be developed between $34-$42 per square foot before renting between $6.50-$12.00 per square foot.
However, even with the steady stats and increased demand, there are still many who are concerned that the looming recession will affect the values of self-storage and that people will no longer be able to afford to store their belongings. Despite the recession, there are opportunities for investing in self-storage right now — more specifically for the bullish investor.
These investors are on the sidelines looking for opportunities. They are anticipating the recession will provide many great opportunities. These opportunities will come from two types of situations: those where owners cannot refinance their property because they did not create a value add and secondly, those who are afraid of a market crash and are putting their properties on the market. Many of these properties have an upside potential that makes them great deals.
There are always those who are nervous about the future. Due to all the doom and gloom in the market, there are many people who are willing to sell their facilities because of the fear of what the future holds. However, for those who have experienced previous recessions and learned from them, these are also times that can provide great investment opportunities.
This is a great time to educate yourself and do your research. Investigate those projects that you previously set aside. You may find that they make sense at the current interest rates. Whether the market continues to enter deeper into a recession, or recovers quickly, there will always be opportunities in self-storage facilities.