Self Storage: Not a Secret Anymore?

When I started my appraisal career over 20 years ago, beside multi-family, office, retail and industrial, the asset class that real estate investors were most intrigued with was mobile home parks (now known as manufactured housing communities). They were (are) a great investment as you own the infrastructure but not the homes in the park. Over the last several years, due to limited new construction and high investor demand there has been a general grid-lock in the industry. You can’t find a MHC for sale and if someone does decide to list their park... a bidding war will ensue.

From there, investors with this appetite went searching for the next best thing and found self-storage to be intriguing, but questioned, “Will people really store their stuff?” Well based on returns over the last 20 years, the answer is “Yep.” Comparing overall average returns on a 5 to 20-year basis, self storage has outperformed the primary asset classes.

Some of the top performing REITs in the Bloomberg REIT Index are self storage companies (excluding firms with less than $100 million in market value). The following table represents the stock prices over the last several years for the five self storage REITs.

So why has the self storage industry done so well over the last several years? Here are a few reasons why this asset class stands out:

• Self storage development is driven by population (roof-tops).
• There is still plenty of room for industry consolidation.
• Self storage facilities are not recession proof but recession resistant.
• Self storage is easier and less risky to manage compared to many other asset classes.
• Self storage facilities are adaptable.

These are just a couple of the reasons why this industry was once a best kept secret but is not much of a secret anymore.