The December 2013 issue of Kiplinger’s Magazine has an article by James Glassman entitled “Get Set for a REIT Rebound”. The article was particularly bullish on self-storage with the highlighted quote “rather than buying a bigger house, people rent a storage unit for their stuff. I am a big fan of Public Storage, the largest REIT in the category”. The average REIT is paying a 3.7% dividend as opposed to Treasury yields of 2.6%. His optimism on REITs in general is based on their yields, as well as the fact that many REITs are seeing higher rents coupled with the aging of the baby boomers, many of which will become renters. Indeed, self-storage seems in the right place at the right time for many different reasons:
As the baby boomers (those born between 1946 and 1964) reach retirement age, many move into smaller housing units, to harvest the equity in their homes, save money on monthly expenses, and simply because they do not need that much room. As a by-product of downsizing, they then must do something with their household goods. And for many of the “boomers” – if not most – the solution comes in the form of renting a self-storage unit. For only around $100 per month, they can rent a 10’ x 10’ space and the problem completely goes away as far as deciding what to save and what to discard, and also keeps the option open to buying or renting a bigger house again the future.
Americans as Accumulators
The reason that 75% of all the self-storage space in the world is in the U.S. is that Americans have long been the world leader in buying things. Our rampant materialism has fueled the U.S. economy for generations, and has led to the consistent need to house our collections. If you look just at holiday season purchases, you’ll find the typical American family has storage needs for their artificial tree, ornaments, yard art, Santa’s for every table top, Christmas lights, and a host of other items. There is no slow-down in this spending spree on the horizon – it’s literally become a part of our culture.
The Uncertainty in the Housing Market
It’s not just baby boomers who are finding displacement a part of life. People of all ages are finding continual uncertainty in their housing, and this is causing them to store their goods while they are in transition. Whether they are moving in search of a new job, or the result of eviction or foreclosure, or because they need to move up or down in the housing market, the net effect is the same: they need someplace to keep their stuff. Don’t forget that the origins of the storage industry began in Britain, in which it was standard fare for military personnel to leave their home contents in trust to banks when they went overseas – the industry has always flourished in times of housing instability.
The Quality of the Self-Storage Message
Instead of the poor marketing of moms & pops in the 1970s, the modern self-storage industry enjoys professional-grade advertising, promotions and appearance. The typical self-storage facility of today has terrific signage, internet presence, targeted specials, secured fencing, a proactive on-site manager and all the bells and whistles of a professional enterprise. This has been giving many people, who would not have considered this option in years past, the confidence to rent a unit. And the caliber of play improves every year.
The Kiplinger’s Magazine article on self-storage put a positive light on the future of the industry. But the reasons that self-storage is flourishing are even more numerous than described in the article. While owning shares in a self-storage REIT such as Public Storage may be a great idea, an even better idea may be to cut out the middleman and own the self-storage facility yourself.