The Future of Self Storage

As we look to the future of self storage, it’s very clear that the future looks bright.  There are a few trends afoot backed by solid industry data that justify my positive outlook on this high growth industry.  These trends are as follows:

Increasing Demand
The U.S. Population is predicted to reach 400 million by the year 2050.  All indicators show that Americans continue to be a highly mobile society with a high propensity to accumulate “stuff”.  This means that as of the time of this publication, we stand to add 150 million potential customers to our prospect list who are searching for somewhere to store their belongings.

High Tech Facilities
As our customers become more selective in where to store their belongings, owners of older facilities will need to make necessary improvements to remain competitive.  This will ultimately result in more sophisticated and higher tech facilities offering more user friendly layouts, larger offices, flexible unit mixes, kiosks, high security, and more climate control units.  In addition, we can expect to see self storage investors competing for the premier parcels located in the high traffic retail areas of town.  As a result, municipalities are beginning to require that these facilities have a retail component in order to increase the amount of sales tax generated and paid to those local governments.  They are also requiring that the facilities have a certain “look and feel” that blend in with the surrounding businesses.  Nicer fencing, or split block security walls, paved drives, certain architectural features, and an attractive landscape package will be mandatory and made part of the architectural permit prior to construction, and strictly monitored for compliance.

More Products and Services
As self storage moves closer to Main Street, we will begin to see an increase in the number of customized services available for its customers.  We have already seen some partnerships being formed that provide complementary products and services.  Of course the most common example is truck rental, but we are now seeing pack and ship businesses, EBAY® add-it stores, Kinko’s®, or co-locating with retail stores such as Starbucks® or Subway® on the ground floor with storage above in multi-story facilities.

Focus on Customer Service
As more and more people frequent our self storage facilities, they will begin to expect more from our facilities and the face behind the counter.  These sophisticated customers are demanding excellence and consumer loyalty will quickly go out the door, along with their stuff, if they have a bad experience.  Conversely, when customers are satisfied with the service they receive, they will stay, and hopefully will tell their friends about the good experience they have had.  This provides an excellent opportunity for us to exceed their expectations, and provide a substantially better experience than our less educated, less professional competitors in our chosen markets.  My goal is to be my customer’s LAST storage provider by never giving them a reason to look anywhere else, for any reason!

Industry Consolidation
As the larger public companies and REIT’s are pressured by Wall Street to produce results, we will surely see more consolidation of the mid to large size companies.  Those same mid to large companies can’t meet their growth deadlines by developing their own facilities from the ground up. The 3 years it takes to choose a plot of land, apply for zoning, permits, and then build and stabilize a property simply isn’t fast enough for them to meet their goals.  Don’t misunderstand me however, the mid to large companies ARE still active developers, but their appetite for growth will fuel a surge in acquisitions and mergers for years to come.

Increased Competition
As all eyes are now on Self Storage, we are sure to see a number of new entrants into this facet of commercial real estate.  Unfortunately, this will lead to overbuilding in some areas as many newer developers will ignore the feasibility criteria for developing a facility in a given market.  Therefore, it will be imperative for owners and developers to work more efficiently to attract and retain customers in this new environment.

Increase in Value
In the future, the upward value trend in self storage will continue for a number of reasons: Predictably low interest rates will push cap rates low, and net larger profits for those who choose to sell.  For that reason, self storage continues to rise in popularity as one of the commercial real estate assets of choice, and will ultimately attract more investors.  There are still a number of individuals and investment firms that are stinging from the recent stock market corrections.  These investors are now searching for a more stable investment that they can “touch and feel” as opposed to investing in a company that they have never heard of, run by people they have never met, in an industry they know nothing about.  There is a lot of money chasing a few deals.  Many investors have created a great deal of value in their existing portfolios, and they are selling off these properties and are looking for places to spend their 1031 tax deferred exchange dollars without paying taxes.  Self storage has continued to be a great investment to exchange into and more and more investors are choosing to park their dollars here before their tax deferred status expires. 
As the saying goes, the only thing we know for sure is that things are going to change.  I do subscribe to that line of thinking, but I also believe that self storage will remain a reasonably predictable, stable, low maintenance, high cash flow investment for professional investors for years to come.

For more information about Scott Meyers or join us at one of the Connecticut Real Estate Investors Association monthly meetings, visit http://www.ctreia.com