I make many bold statements about self storage, like now is a great time for smaller investors to buy self storage.
I will be the first to tell you I make a lot of mistakes (just ask my wife).
But I stand by this and want you to know our company is going to be acquiring in 2021 as well.
I try only to talk about things we are doing and not just spout theory, although I apparently do a lot of that as well.
Let me share my thoughts about why I say 2021 is a good year for the smaller investor to buy self storage and put in some cautions as well.
Performance
First of all, regardless of how hard it is to find or buy a good, existing self storage project, know that this sector has performed well during the pandemic.
According to Yardi, rental rates were up in November 2020. Our occupancy has never been higher. Yes, some areas of the country were hit hard, and during certain points in the year 2020, facilities’ occupancy rates were down, but as a whole, this asset class has outperformed other sectors.
We are beginning to see money come from the multi-family sector into self storage.
This creates its own set of challenges for the small investor as more money chases deals, but it should verify that self storage is the thing to own, especially during economic challenging times.
Evolution of the Industry
I often compare the self storage industry to the cycle of a human being.
I estimate we are now as an industry, young adult, or older adolescent. We are no longer in our infancy or childhood.
But keep in mind, we are still very much a mom & pop type of industry. The vast majority of self storage facilities in the US are owned by someone who owns just one.
The last statistic I saw was 62%.
What drives these projects to the market usually isn’t CAP rates or interest rates. What will drive them to the market is a change in the life of the owner—usually a retirement, a death, an illness.
And these facilities are just ripe for the value-add play we as small investors have to do to be able to get the returns we need in today’s overpriced self storage environment.
The Next Decade
Over the next ten years, what percentage of these self storage facilities mentioned above will hit the market due to a change in the life of the owners?
30%?
50%?
75%?
That’s a lot of self storage projects.
Many, if not most of them, are not ones that REITs are going to be interested in…yet.
They will be too small, or too old, or not in locations where they want to focus on …yet.
But, mark my words, over the next decade, we are going to see a consolidation in this industry as we have never seen before.
The institutional players will own a larger and larger percentage of the market.
No matter what you may think about large companies, the “Amazon Effect,” and other sorted opinions on matters of the day, this is where the opportunity is for us smaller investors.
Here is a headline from 3 days ago as I write this:
Public Storage Agrees to Acquire Beyond Self Storage Portfolio for $528 Million
What if this was your portfolio?
Cautions
However, it has also never been more challenging for a small investor to get into self storage as it is now.
Many of the markets and submarkets are overbuilt.
That does not mean there are not many opportunities out there. It just means we need to be smart about where we go and how we analyze the deals today.
Our market areas will also most likely be larger than in the past.
We need to do more research up-front onn the market, the submarket, and the submarket demographics.
But most importantly, we need to be doing value add plays, such as:
• Improving management operations.
• Automating.
• Expansions.
• Conversions.
• Mixed-Use.
These usually require new knowledge and skillsets for many of us.
But if we are willing to grow, change, and adapt, the next decade will be a great time to be in self storage.
In our company, we are not allowed to say anymore that “That doesn’t work” or “We have tried that before, and it doesn’t work.”
The truth is we don’t know what will work today. We are adapting, pivoting, changing, experimenting, and going for it.
We anticipate 2021 to be a year of growth for ourselves and the self storage industry.
I often tell people what I read in a Chinese proverb about planting trees…” the best time to get in self storage was twenty years ago…the next best time is today.”
