Issue 70- Self-Storage Demand Driven By Four Ds
Introduction...Self-Storage is booming. Seventy-five per cent of all self-storage in the world is in the United States. There are over 50,000 storage facilities in the U.S. and the rest of the world has 15,000.
Demand…Demand for self-storage is driven by four major life events the industry calls “the four Ds”
- dislocation (e.g. job loss)
“The big driver is change,” said Brad Schwer of Morningstar Equity Research. “In one way or another, people are looking for stability.” That may be why they hang onto stuff that may not have a future value to them.
The U.S. has an estimated 2.6 billion square feet of storage, according to the Self-Storage Association. That’s about 8.1 square feet per person, which is growing.
Experts are not sure how much longer this growth curve will last. However, storage is very local. Typically, our trade area is a 3-mile diameter. So, one area that could be over built, may not impact another area where demand exceeds supply.
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I recently visited a property in a town west of Fort Worth. This C Class property was charging higher rents than an A Class property one mile away.
I asked the owner how she could charge higher rents than a nicer A Class property. She said, “I don’t worry about what my competition charges. I just give the best personal service in town, so price is secondary.”
Why tenants stay...Most people rent storage much longer than they expect and over value the sentimental item inside. Rarely do they shop for better pricing once their belongings have been stored.
The physiology of storage is opposite that of other commercial real estate. Generally, we want longer term leases for commercial property of 3 to 5 years. With storage, our leases are generally, month to month. If they had a term lease, they would be inclined to move out at the end of the term. With a month to month lease, they can move out at the end of the next month. Then the next month. Then the next month. Five years later, they still haven’t moved.
In conclusion…Self-storage is a good business to be in. The reason its a good business is that you can raise rents on existing customers by 5 to 10 per cent every eight to ten months and they will stay. Most customers are on auto payment so the small incremental increases typically don’t spark a move out.