On the demand side, self-storage units are the "Hotel California" of the real estate sector: once you're checked in, "you can never leave." Despite storage units typically being rented on a month-by-month basis, nearly half of renters stay longer than two years, and many of the 30 million self-storage renters in America park their possessions in a storage unit for a decade or more. While the zoning and entitlement process was once believed to be a significant barrier to entry holding back supply growth, local municipalities have generally eased restrictions on self-storage facilities over the last five years, in part due to improving aesthetics, but also because of higher property values (and thus tax revenues) and due to increased demand for these facilities from a generally more affluent consumer base. A double-edged sword for asset owners including REITs, the ease and efficiency at which operators can enter the market have resulted in a wave of speculative supply growth coming online over the last half-decade, a large chunk of which has come from developers with limited previous experience in the self-storage business. Self-storage facilities command some of the highest NOI margins in the real estate space at over 70% and require minimal ongoing capital expenditures to maintain the facilities. The operating efficiency and relative simplicity of the self-storage business are second to none in the real estate sector. Often viewed as an extension of the residential REIT sector due to high correlations with multifamily and single-family rental fundamentals, self-storage REITs comprise roughly 8% of the broad-based commercial REIT ETFs ( VNQ and IYR) and also comprise roughly 3-4% of the Hoya Capital Housing 100 Index, which tracks the fundamental-weighted performance of the US Housing Industry.įor self-storage REITs, the self-storage business is almost too good. 70% of customers are residential, with the other 30% split between businesses, students, and the military.
There are roughly 50,000 self-storage facilities throughout the country and proximity to one's home (generally 3-5 miles) is cited as the most important feature. Roughly one in ten US households rent a self-storage unit and annual industry revenue totals nearly $50 billion. For simplicity, we focus primarily on the comparable fundamentals of the five consumer-focused self-storage REITs. We also track Iron Mountain ( IRM), which focuses primarily on business storage and ancillary services related to record retention including a growing data center portfolio. In the Hoya Capital Storage REIT Index, we track the six largest storage REITs, which account for roughly $70 billion in market value: Public Storage ( PSA), Extra Space Storage ( EXR), CubeSmart ( CUBE), Life Storage ( LSI), and National Storage Affiliates Trust ( NSA). (Hoya Capital, Co-Produced with Brad Thomas through iREIT on Alpha) Storage REIT Sector Overview We then analyze REITs based on both common and unique valuation metrics, presenting investors with numerous options that fit their own investing style and risk/return objectives. In our REIT Rankings series, we analyze REITs within each of the commercial and residential sectors, focusing on property-level fundamentals and the macroeconomic forces driving overall supply and demand conditions. This idea was discussed in more depth with members of my private investing community, iREIT on Alpha.Symptomatic of the ongoing storage wars, marketing spending jumped nearly 60% from last year for these REITs, pressuring same-store NOI growth to essentially zero.Competition remains fierce in an oversupplied market. 2019 was shaping up to be a strong year for the sputtering self-storage REIT sector, but 3Q19 earnings were a setback on the road to recovery.Once a perennial top-performer in the REIT sector, developers and new operators have flocked to the sector in recent years, adding new supply at a furious rate, weakening fundamentals.The glory-days of double-digit annual rent growth, however, are long gone for the self-storage REIT sector, which has seen a commensurate boom in supply growth over the last half-decade.Ok Boomer, what are you going to do with four rooms of extra furniture when you downsize? Self-storage operators continue to see "booming" demand for storage space.
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