Self storage (a shorthand for “self-service storage”, and also known as “mini storage”) is an industry in which storage space (such as rooms, lockers, containers, and/or outdoor space), also known as “storage units” is rented to tenants, usually on a short-term basis (often month-to-month). Self-storage tenants include businesses and individuals.
Industry experts often refer to the 4Ds of life (death, divorce, downsizing and dislocation; the latter can refer to either the renter relocating to another area and needing space to store items until they can be moved to the new location, or a subsequent marriage resulting in the couple having duplicate items) when discussing why storage space is rented.
Self-storage facilities rent space on a short-term basis (often month-to-month, though options for longer-term leases are available) to individuals (usually storing household goods; nearly all jurisdictions prohibit the space from being used as a residence) or to businesses (usually storing excess inventory or archived records). Some facilities offer boxes, locks, and packaging supplies for sale to assist tenants in packing and safekeeping their goods, and may also offer truck rentals (or may allow free use of a truck for a new tenant).
Items are generally not covered by the facility’s insurance; the lessor may be covered by his/her own insurance policy (if such policy has coverage for items stored off the premises of the insured) or may purchase insurance to cover the items (which the facility may offer as a service through a third-party carrier, and in some cases may require the lessor to purchase as a condition of rental).
The rented spaces are secured by the tenant’s own lock and key. Unlike in a warehouse, self-storage facility employees do not have casual access to the contents of the space (and, thus, the facility is generally not liable for theft). A self-storage facility does not take possession or control of the contents of the space unless a lien is imposed for non-payment of rent, or if the unit is not locked the facility may lock the unit until the tenant provides his/her own lock.
Although there is historical evidence of publicly available storage in ancient China, modern self-storage facilities (in which the tenant has exclusive access to the storage space) did not begin to appear until 1958, when Lauderdale Storage in Fort Lauderdale, Florida (founded by the Collum family) opened for business. In the late 1960s, the first self-storage facility chains started to open in Texas.
Modern storage facilities grew slowly through the 90s, at which time demand outpaced supply and caused a rush of new self-storage developments. From 2000 to 2005, over 3,000 new facilities were built every year in America.
Self storage today
At year-end 2009, a total of some 46,000 self-storage facilities, owned by 30,235 companies, have been developed in the United States on industrial andcommercial land parcels. There is more than 2.35 billion square feet of self-storage in the U.S., or a land area equivalent to three times Manhattan Island under roof. The five large publicly traded storage operators (four REITs and U-Haul) own or operate approximately 9% of self-storage facilities. More recently, in manymetropolitan cities where competition among storage companies is fierce, better parcels of land near residential and commercial areas are being converted into self-storage once approved by zoning panels. In an effort to build these facilities faster and gain more market share, some storage operators are turning to prefabricated units that allow for quick installation and location growth. Companies are becoming more adept at manufacturing these modular storage units, allowing operators to get up and running quickly. To support the need, businesses like PODS are expected to enter the modular construction effort as well.
An emerging storage trend is the addition of Mailstorage or on-demand storage options, where customers’ items are kept together in a warehouse rather than providing each customer with a storage unit.
Self-storage businesses lease a variety of unit sizes to residential and business customer/tenants. Popular unit sizes (expressed in feet, with width shown first and depth shown second) include:
- 5×10, about the size of a large walk-in closet,
- 10×10, about the size of a child’s bedroom (as of 2015, 10×10’s are the most common storage unit size, making up 16% of the distribution in the U.S.),
- 10×20, about the size of a one-car garage,
- 15×20, about the size of a large master bedroom, and
- 20×20, about the size of a two-car garage.
The storage units are typically window-less, walled with corrugated metal, and lockable by the renter. Each unit is usually accessed by opening a roll-up metal door, which is usually about the same size as a one-car garage door (smaller units may be accessed by a hinged metal door). A controlled access facility may employ security guards, security cameras, individual unit door alarms and some means of electronic gate access such as a keypad or proximity card. A few facilities even use biometric thumbprint or hand scanners to ensure that access is granted only to those that rent. Self-storage facility operators frequently provide 24-hour access, climate controlled storage, outdoor storage for RVs and boats, and lights or power outlets inside the storage unit as amenities to set themselves apart from competitors. Some storage facilities have open roofs i.e. a wire mesh roof which are not that secure, compared to ones that have full covered tin roofs that provide added security and privacy.
In rural and suburban areas most facilities contain multiple single-story buildings with mostly drive-up units which have natural ventilation but are not climate-controlled. These buildings are referred to as “traditional” storage facilities. Climate-controlled interior units are becoming more popular in suburban areas. In urban areas many facilities have multi-story buildings using elevators or freight lifts to move the goods to the upper floors. These facilities are often climate-controlled since they are comprised mostly, if not totally, of interior units. Warehouses or grocery stores are sometimes converted into self-storage facilities. Loading docks are sometimes provided on the ground floor. Also, complimentary rolling carts or moving dollies are sometimes provided to help the customers carry items to their units. Urban self-storage facilities might contain only a few floors in a much larger building; there are successful self-storage businesses co-located with manufacturing plants, office tenants and even public schools.
One in ten U.S. households now rent a self-storage unit. The growing demand for self-storage in the U.S. is created by people moving (some 40 million people move each year according to U.S. Census data), and by various lifestyle transitions, such as marriage, divorce, retirement, a death in the family, etc. Recent surveys of self-storage companies indicate a positive trend in market demand and occupancy rate.
Over 54,000 self-storage facilities currently exist in the U.S. ranging from companies with a nationwide presence to companies with regional footprints or even stand-alone independent “mom and pop” facilities.
Demand for storage space remains stable as of Q4 2015. The supply for self-storage is also relatively stable. Often, the process to build a new storage building is onerous and can take years. Additionally, this specific asset class often gets push back from communities, due to its nature.
The self-storage sector is highly fragmented, which is in contrast to other asset classes in the industry. 80% of self-storage facilities are owned by individuals or small investors. In recent times, real estate investment trusts (REITs) have demonstrated a healthy appetite for this asset class. Notable publicly-traded REITs in this sector include CubeSmart (NYSE: CUBE), Extra Space Storage (NYSE: EXR), National Storage Affiliates Trust (NYSE: NSA), Public Storage(NYSE: PSA), and Sovran Self Storage (NYSE: SSS).
There is a belief amongst investors that the self-storage industry is recession-proof. This belief is supported by the 5.1% total return the sector delivered to investors in 2008.