Self-Storage

Overview

Self-storage facilities, often portfolios of three to ten properties, sometimes single sites in growing markets. Tenants are individuals and small businesses on month-to-month leases. Operationally these are among the leanest properties in commercial real estate.

Analyst Notes

Three-mile and five-mile supply analysis is the most important diligence item. Count what's existing, what's under construction, and what's permitted. Look at rent per square foot relative to comparable facilities and check the trajectory over the last few years. Find out who manages the property. Third-party management by one of the major operators can meaningfully outperform mom-and-pop management on the same building. The best deals are in markets where zoning makes new construction hard and the existing supply is well-occupied.

Advantages

• Operating costs are low. There's no plumbing in the units, minimal staffing, and little capex compared to other property types.

• Tenant stickiness is high. The friction of moving belongings means tenants tolerate rent increases that would drive turnover in apartments.

• Demand is somewhat counter-cyclical. Life events that drive storage use (downsizing, divorce, job changes, deaths in the family) happen in good times and bad.

Disadvantages

• Supply has been heavy in many markets through the 2018 to 2022 building boom, and new product can hurt rental rates at incumbent properties for years.

• Pricing power exists but using it aggressively drives churn, so management discipline matters.

• The big public operators (Public Storage, Extra Space, CubeSmart) have advantages in marketing spend, revenue management software, and brand recognition that smaller portfolios can't always match.

Frequently Asked Questions (FAQ)

Property Type Performance Averages