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Self-Storage: Facts Behind The Booming Commercial Real Estate Trend

January 10, 2019

Self Storage Booming Trend

Do you feel like self-storage facilities are popping up, well, everywhere? It’s not your imagination. Commercial real estate investors and corporate entrepreneurs, fascinated by the relatively simplistic industry business model, are purchasing and constructing self-storage properties at a record pace. Initially scoffed at by financiers and real estate professionals as a risky business venture (why would anyone pay a monthly fee to store items they rarely use indefinitely?), the self-storage vertical has surged to a 38 billion dollar industry, with most of its revenue generated in the United States.

Downsizing And Decluttering Have Helped Build Self-Storage Industry

So…why are we so willing to pay a monthly fee to store items we rarely use? Two of the biggest contributors shaping the accelerated growth of the self-storage vertical are decluttering and downsizing. Once synonymous with retirees and empty nesters, downsizing in the U.S. has been embraced by multiple generations, for a wide range of reasons. Yes, the Baby Boomer generation absolutely makes up a critical segment of self-storage facility patrons. However, other age demographics are also part of the industry’s targeted audience, lending long-term validity and sustainability to the vertical’s customer base.

For example, as residential real estate prices continue to surge across the country, younger couples and families looking for smaller, more affordable homes are also utilizing self-storage facilities as an ideal solution to both own their piece of the American dream and get to hang on to all of their stuff. Our continuously increasing inclination for smaller homes, coupled with growing trends in decluttering, minimalism, and even Swedish Death Cleaning (yes, that’s a thing), has transformed our need for self-storage from passing fad to full-on phenomenon, with no likely end in sight.

Is Self-Storage The Right Commercial Property Investment For You?

If you’re considering purchasing a self-storage facility (or facilities), it’s important to understand some of the many benefits this type of commercial real estate investment offers to owners.

Buying a self-storage warehouse offers:

Low Construction Costs

Construction costs for standard offices, retail buildings, and medical facilities can range anywhere from $100-$225 (or higher) per square foot. However, self-storage facilities can typically run $40 per square foot for a single story facility and up to $70-80 per square foot for a multi-story property for significant savings on overall building expenditures.

Recession Resistance

While nothing in the commercial real estate vertical is recession proof, self-storage has demonstrated undeniable recession resistance. In fact, the need for a storage facility can actually increase during a recession when people are more liking to sell their homes and rent a residential property. Self-storage units can prove a convenient option to hold items during the transition from homeowner to tenant. And let’s be honest; in an age where we can purchase pretty much anything online with just a few screen taps, our obsession with overbuying and aggregating things we don’t really need isn’t like to go away anytime soon, paving the way for even more self-storage facilities within the market.

Reduced Commitment Leases

Traditional commercial property leases can often last for one or several years. However, with storage warehouses, owners can establish month-to-month tenancy with the renters of every individual unit. This low commitment contract works for both parties. Renters appreciate knowing they aren’t obligated to a long-term relationship should their storage needs change. Likewise, landlords recognize the value of being able to terminate a contract fairly quickly after the first lapsed monthly payment from a renter.

Relatively Stress-Free Eviction Process

Commercial real estate owners recognize that removing non-compliant tenants is often an inevitable part of being a landlord, which can be stressful. However, the eviction model for a storage warehouse is completely different from other commercial and industrial landlord/renter partnerships in that there are no evictions. The business provides shelter and protection for goods, not people. Property owners outline the terms of delinquent payments and defaulting the unit in the initial contract, which may grant them ownership of the items in the facility. Additionally, unlike traditional business tenants where a landlord may incur additional expenses to repair damage and freshen up the building before finding new lessee, a self-storage facility generally requires a straightforward cleanup to get it “renter ready.”

 

Are you considering investing in the self-storage industry? Contact Southpace Properties today to talk with one of our experienced commercial real estate professionals.

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