I realize I have been spending so much time keeping my eyes on the immediate self storage horizon over the past year.
Given the world today, it is hard to look past the next month or six months. What the world will be like in a year is anyone’s guess.
But let’s do that. Let’s look into the future of self storage.
As a business owner, I think it is critical to try.
I have no crystal ball, but I can make educated guesses and then invest as I see benchmarks indicating I am most likely right. I can also pivot as needed.
But before I talk about what I see are my top three predictions for self storage over the next decade or so, let’s talk about the elephant in the room – oversupply.
Oversupply
Oversupply is a temporary phenomenon.
Many markets and sub-markets are indeed overbuilt at this moment. But here is what I do know, this will change.
Oversupply is part of a natural real estate cycle. It is winter, followed by spring, then summer.
Don’t get too bent out of shape over it. I know it can be tough in certain markets where population growth is slow, and oversupply is creating the race to the rental bottom to get the existing customer base. But, even in these markets, over time, this will level out.
My second prediction will address this issue directly, but I felt I would be remiss if I didn’t acknowledge what is currently going on.
Population growth solves the mistakes we make as self storage developers and as an industry.
So with this current reality fully acknowledged, and as a person in the business or getting in the business, we are not resisting this fact but adjusting for it. Let me give you my three long-term projections for this industry.
Prediction Number One: Institutional Money Will Continue To Flow Into The Space
As an industry, we are maturing and becoming adults.
In the world of real estate, this means there will be lots of big players with lots of money coming into the space. This is currently going on, and I don’t see it letting up. In fact, It will grow.
It will grow because self storage is such a good investment vehicle and cash flow for investors is safer with this asset class generating it. So it is not surprising funds, REITs, and other larger blocks of people with money to invest in real; estate would turn towards self storage.
It creates real challenges for smaller investors like us to compete with them.
But like we discussed with oversupply, this is just what’s so. Resistance is futile and unproductive.
In fact, we have now incorporated it into our business strategy. We are looking for facilities these guys usually don’t, and we are trying to sell to them on our exit.
It may shorten our holding period and a few other adjustments, but this is what we are doing to adjust to the realities as we see them.
My coaching is not to resist what we see coming down the pike and adjust accordingly.
But for the next five to ten years, I do see institutional money coming into this space growing.
Prediction Number Two: Demand For Self Storage Will Increase
I also see demand for self storage increasing.
I see two factors at play here over the next decade.
First, and most importantly, is that as our industry matures, it has become known and accepted by the population.
Over the last few decades, a larger percent of the population has used self storage. I have not seen data from 2010 through 2020 yet, mostly because of the last administration’s interference with the 2020 census collection methodology (excuse my rant, but until we get accurate information from the 2020 census collection, we are in essence relying on 2010 data, and that was held up over political wrangling on how to count certain segments of the existing population by the last administration…hopefully the new data is coming out soon).
But my guess is that it grew faster than 2000 to 2010, during which approximately 2% more of the population used self storage.
Not only do I see a larger percentage of the population using self storage, but I also see the population growing.
Again, no accurate 2020 data yet, but from 2010 to 2020, the US population grew approximately 19.5 million, or 6.5%.
Now that growth was higher in certain parts of the country and less, or even a loss in others. That number tells me that the population growth alone generated an approximate 146,250,000 additional square feet of self storage demand. That’s an average of 12,187,500 per year of additional self storage space needed just to meet the population growth.
And the population is most likely growing faster, and a larger percentage will use self storage.
That is why this product has a great looking next ten years ahead and that oversupply, although a real issue to deal with, is a temporary phenomenon.
Prediction Number Three: Consolidation
The final prediction I will venture to make is the ongoing consolidation of the self storage space.
In other words, the larger players will own and operate a larger and larger percentage of the facilities in the US.
For all the talk we give around institutional players and REITS, they still own under 25% (the last figure I saw was 20% a few years ago, so I feel safe in saying under 25%) of the storage facilities out there.
The vast majority are still owned by someone who just owns one facility (the last figure I saw was 62%).
Over the next ten years, what percentage of facilities do you see the larger players owning? 50%? 60%?
More?
Rather than resist this or fight it, embrace it. Include this in your overall business strategy. For us, we sell to them.
It does not really matter if you will exit to them or not. Just understand the trend, and either use it or work around it.
I see a lot of potential as these guys clamor to buy self self storage. It might as well me us that sells to them is how I think about it.
Conclusion
We often hear a lot about how bad it is trying to get in self storage and how overbuilt the market is.
I don’t want to minimize anyone’s challenges, but I just suggest that a larger perspective sometimes helps.
These are my predictions for the self storage industry over the next ten years or so. So my coaching is, get in and or grow in the space to take advantage of these long-term trends.
It is still the best game going for the small investors, in my opinion.
