Four Reasons Why Self-Storage has Performed Well in Inflationary Environments and Times of Recession

November 23, 2022 | James Sprow | Blue Vault

1. Potential Rental Benefits – The short-term month-to-month nature of self-storage leases permits leases to be reset to market rates potentially quicker than most other real estate leases. This allows for an inflation hedge. Additionally, relative to other real estate asset classes, the low, predictable, and mostly fixed expenses to operate a self-storage facility means even incremental unit rent increases can be very meaningful to the facility as a whole, and the stickiness of self-storage tenants can often allow for incremental increases to a storage unit’s rent.

2. Potentially Recession Proof– During the 2008 recession, self-storage was the only real estate asset class with positive returns. Mainstay Global stated that during the Great Recession, all commercial real estate segments, except self-storage, experienced net annual losses between 25 to 67%. Self-storage actually posted a gain of 5% in 2008. Recessions exacerbate the downsizing by both companies and consumers, often creating more need and more demand for storage solutions and is one of the main reasons self-storage is often called recession proof. ¹

3. Increased Demand – One of the largest demand drivers for self-storage is created by people moving. With baby boomers continuing to downsize and millennials being priced out of home ownership, more and more people are opting to rent or move into smaller spaces. This trend is creating an increased need for storage. Also, the move to working remotely and more flexible work-from-home policies has created an even greater need for outside storage for personal possessions in order to create more room for an in-home office and work space.

4. Near All-Time Low Vacancy Rates– According to Forbes, it’s estimated that over 13 million people or more than 10% of US households, currently rent self-storage spaces. Storage rental rates continue to increase and vacancy rates are near all-time lows. ² According to Marcus & Millichap, national vacancies are forecast to be at 6.5% by the end of 2022. This is down from 9.5% in 2019. Continued demand is also reflective in the national rents for self-storage, which are also currently up to $1.33 per square foot from $1.14 in 2019. ³

Footnotes:

1 http://www.mainstayglobal.com/is-self-storage-recession-proof#:~:text= During%20the%20Great%20Recession%2C%20all,to%20let%20go%20of%20it.

2 https://www.forbes.com/home-improvement/contractor/ask-the-contractor-self-storage/ 3 https://www.marcusmillichap.com/research/market-report/multiple-markets/2022-us-self-storage-investment-forecast

Source: Realty Mogul