Have you ever watched Storage Wars? Well, the premier episode of
the second season drew no less than 5.1 million viewers, making it the highest
rated single episode of any series in the history of A&E. However, for
serious investors, putting money into storage is about much more than paying
$500 to own the contents of an abandoned, unopened storage unit. What exactly
is the state of the self-storage industry, and is it a good investment?
Well, it turns out that the industry is doing rather well on the
whole. Perhaps the best evidence of this is the returns we are seeing in the
stock market on REITs for storage companies – in other words, the value placed
on the real estate that they occupy. In 2011, the average return on self-storage
REITs was no less than 35.4%, which is very impressive when you consider that
the average return on REITs overall only came in at 8%. That’s in a year when
the Dow was up about 5.5%, so while real estate did well, the performance of
storage was spectacular.
Another indicator of just how strong the storage market is comes
from the amount that investors are now starting to be willing to pay for
premium storage facilities in good urban locations. A recent deal involving Storage Post in New York City saw the company
spend $300 million for 14 facilities, and, importantly, the deal came in at a
5.5% capitalization rate – the ratio of property income to price paid. Another
way of looking at that is that it is the equivalent of an 18 to 1 P/E ratio –
which is certainly not what you would expect of a seemingly stolid industry. In
contrast, the capitalization rates back in the depths of the Great Recession
went as high as 9%, so it now appears that companies are willing to pay slightly
less than a 65% premium compared to a few years ago.
If you want to understand some of the things that are driving
demand for cheap
storage San Diego perhaps gives some clues. There is an increasing trend
for young adults to live in apartments and condominiums in the center of cities
in general, rather than making their homes in single-family dwellings in the
suburbs. This in turn is making them look to self-storage to make up for the
lack of room in their homes. However, San Diego experienced a dramatic collapse
of its condo market during the Great Recession, with foreclosure rates high and
many properties lying vacant. But that has started to turn around dramatically
over the last year, with the market actually starting to experience some scarcity.
In turn, the influx of new, young residents is creating an opportunity for
self-storage facilities to capture the increasingly affluent new residents in
the downtown core. It is reasonable to assume that similar scenarios are
playing out across North America, and indeed analysts are forecasting that the
market for self storage will continue to grow over the next five years.
