October 18, 2022
This blog post is part of an occasional post on the topic of self-storage in America, part of my larger research project in progress – PD
As the Coronavirus pandemic first threatened, and then failed to negatively impact the self-storage industry, a cyclical concern about oversupply re-emerged in the business publications. Continued acquisition and construction in the sector worried some analysts, who at this point simply bring up potential oversupply as a theoretical risk – something you feel obliged to mention in a SWOT report or presentation to investors. Surely there is some level of supply that is adequate? Some X number of storage units that will demonstrate a saturated market? Logically, yes, but we haven’t found it yet in the United States.
Demand continues to outpace supply in most parts of the country. In the relatively rural area that I live in, neighbors on social media complain about not being able to rent a storage unit. And I’ve counted about 10-12 facilities of various sizes in roughly a 25-mile radius. Storage facilities don’t aim for 100% occupancy, as it leaves them little flexibility. Nonetheless, nationally, the norm is well above 80% and usually more like 90%. Add to that the fact that most facilities’ breakeven point is at about 60-65% occupancy, and a picture begins to emerge of a sector that has to really try hard to screw up in order to not make money. This is true both of mom-and-pop stores, who see relatively little overhead, and the ones owned or managed by large REITs, who generally return double-digit gains each year to investors. However, the perspective of the locally owned facility and the big national firms are different. Investor-run enterprises are concerned that if a facility’s occupancy is too high, it isn’t charging high enough rent on each unit. Coming from the perspective of investments spread out over literally tens of thousands of facilities, the ability to raise rents – even by small amounts each month – is central.
But mom and pops may not see it this way. First, many local concerns have built units as an adjunct to other enterprises on land they have already acquired. The books-balancing equation, combined with limited oversight staff, is thus much simpler. Plus, particularly in rural areas, personal trust is valuable. Potential customers in more wide-open areas have more options to simply NOT rent a unit or remove their stuff to a neighbor’s garage or shed if needed. Suggestions by self-storage advisor publications to continually raise rents, even by small amounts, once occupancy reaches a certain level, is less useful advice to the small, independent facility.
Nationally, renters continue to pursue storage. People are finding more incentive to rent units for themselves, not less. What’s behind this? Although we can tell some things about demand from the newer kinds of storage unit use emerging (microenterprise, workshops, pop-up retail, music studios, etc.), what makes potential residential users different from even a few decades ago? That is to say, what makes storage so attractive a solution, even though it is costly?
A straightforward answer is their sheer availability and accessibility. They are costly, but they circumvent other problems. While self-storage marketing continues to focus on the needs of those experiencing the 4Ds – dislocation, downsizing, divorce, and death — these facilities have, more recently, become attractive to consumers for adjacent reasons. Temporary, amidst-a-move storage becomes longer-term storage. Inter-generational conflict about the disposition of furniture and other stowaway goods is eased by a storage unit rental. A unit first rented to house a motorcycle is large enough to accommodate some excess items from the house, and then maintenance of the rental for that purpose continues. Commercial uses have, in turn, communicated the potential creative uses available to the non-commercial renter, such as: Santa’s closets, man caves, rehearsal spaces, and craft spaces. So once the niche expanded for more practical reasons, it quickly became a multi-solution space that people thought of in comparison to a number of other options. Alternatives – that is, what we would do with extra stuff if storage units weren’t available include: stowing things at home, stowing things with another household, selling or giving away items, and trashing them. Storage units’ ubiquity enables us to set aside, defer, or bypass these options. Keep in mind that these alternatives, which most people still use to some extent, engender significant emotional reckoning and a series on ongoing interpersonal negotiations. A ten-by-ten unit, on the other hand, has little to say back to you.