4 Predictions About The Self-Storage Business

Tech startups that aim to interrupt present industries must know identifying industry trends and understand where the industry is moving. For my company, that industry is self storage, consisting of small facility operators as well as a handful of large players that dominate the market.

Regardless of being a established industry, self storage is experiencing innovations and growth that continue to make it a worthwhile investment and an interesting area to do business.

As the creator of a peer-to-peer storage marketplace in the U.S., here are my 4 forecasts about the trajectory of the self storage industry in the coming years.

1. While requirements continues to increase, it will be outpaced in the short term by new supply.

Ever-increasing demand growth is a fact of the self storage industry. Up until now, supply has left up with demand, with over 90% occupancy rates being typical since 2015, according to the 2019 Self Storage Almanac from Mini Storage Messenger.

As for instance baby boomers get started on to downsize, the need for storage units is expected to increase. Additionally, while some believe millennials will use storage less than previous generations, data from Marcus & Millichap’s “2018 U.S. Self Storage Investment Forecast” suggests they will continue the demand trend as they still, although slightly later in life, are forming families and accumulating material possessions.

In order to complement this growing need, real estate financial investment trusts (REITs) have poured an enormous amount of capital into constructing hundreds of thousands of new square footage. In 2011, only $241 million was spent on mini-storage facility construction. That number has increased every year, and in 2018, nearly $5 billion was spent on new facilities, per U.S. Census Bureau data on private construction spending.

Nevertheless, industry analysts fear that this glut of new storage facilities will demand in the short term, causing a decline in the decade-long high returns enjoyed by some of the largest players in the industry, including Public Storage and Extra Space Storage. Increased supply may result in lower unit leasing prices as storage operators contend to fill their units.

2. While this increased supply may temporarily halt rental price increases, many cities around the nation will continue moving to restrict or slow new self storage construction.

Putting a cap on supply growth while demand continues to increase will significantly increase rental prices in the medium to long term.

In New York, for example, the city recently signed a zoning freeze into law. Now, that it takes two years just to get the special permission to build. The decision cited a lack of space, displacement of companies that produce high-quality jobs and a negative impact on the aesthetics of the city for the enactment of the law. In addition, storage facilities may not provide the same amount of sales tax and other revenue as alternative commercial or industrial construction.

New York joins other major cities, including San Francisco, Miami and Charleston, that have similar restrictions, with others likely to follow. I’ve also learned that several smaller cities intend to cap storage facility construction. While storage operators are attempting to adapt by building more attractive facilities with smaller footprints, the burden of paying for these improvements will still fall on storage unit tenants.