The resilience of the self-storage industry is remarkable. Despite the U.S. recession, our occupancy remains strong and our rents remain in place or higher. We have no problem renting our units with less than aggressive marketing efforts. The reason, we believe, are some fundamental shifts in the U.S. economy and demographics that are pushing self-storage up despite the weak efforts of some of the operators out there. Bear in mind that of the roughly 50,000 self-storage facilities in the U.S., only 5,000 are owned by the five public companies that own self-storage (including U-Haul). So that means that the average self-storage investor is a mom & pop, or someone who only has a small collection of facilities. So the overall high occupancy has to be more about demand than professional management. Read our lead article for more information on this concept …
Memo From Frank & Dave
Self-Storage Is Benefitting From Many Megatrends In The U.S.
Did you know that 1 in 10 households in the U.S. have a self-storage unit, as opposed to 1 in 17 in 1995? That’s a 65% increase. Why is that? Well, there are many reasons for this phenomenon, but what’s interesting is that most of these causes are part of large megatrends that are going on in the U.S. right now, and will continue for many years to come. And that’s very positive for the self-storage industry.
Downsizing of homes
The first megatrend that is fueling the strength in self-storage is the retirement of the baby-boomers. This demographic, defined as those born between 1951 and 1964, is resulting in a huge wave of movement as they reach retirement age. Currently, there are 10,000 baby-boomers per day taking retirement. And, as this giant group enters retirement, many have moving to a smaller home as part of their plan. Since it is hard to part with many items for sentimental or financial reasons, many things must go a self-storage unit as part of the downsizing plan. And this 10,000 per day number will be going on for an anticipated 11 more years.
At the same time that the baby-boomers are aging, so are their parents. As a result, there is a huge generational transfer from one generation to the other of household items and estates. Every time someone dies in America, that property has to go somewhere. Much of these inherited items end up in a self-storage unit while the recipient decides what to do with them, or elects to keep them for their descendants. People die in the U.S. at the rate of 7,000 per day.
Another megatrend that is developing is the multi-generational household – basically adult kids moving back in with their parents and grandparents. As the employment environment has declined, many young adults are unable to find decent jobs, and move back in with family out of necessity. When this occurs, space is at a premium, and anything that is not essential is often moved to a self-storage unit. At the current time, 25% of all adults under 30 live with their parents or grandparents. And, as the recession continues, this number is expected to grow.
Cost of housing
The final megatrend that is causing self-storage demand to rise is the sheer cost of housing in the U.S. With the cost per square foot over $100 in most markets – and over $1,000 in select urban markets – it just makes sense to store items in a self-storage unit rather than use valuable home square footage for such an endeavor. In addition, the cost to add-on to an existing home is gigantic, so building a garage or extra room just for storage makes absolutely not financial sense.
There is a rule in real estate that you need to be on the right side of trends. Even better yet, be on the right side of megatrends. In self-storage, you get to be on the right side of several megatrends. And these should only serve to push rents and occupancy higher in the coming years.
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Did You Know?
The current distribution of self-storage facilities in the U.S. is 32% urban, 52% suburban and 16% rural. That means that you can pretty much find self-storage facilities throughout every market in the U.S. Of course, it also means that if you don’t live in a city, the amount of total self-storage space is pretty low, so it may be hard to find a vacancy!
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