21 Oct 2024
The self-storage industry is booming, but like any growing market, it comes with both strengths and challenges. For owners, investors, and those interested in the business, understanding these dynamics is crucial. Here’s a breakdown of the five biggest strengths and weaknesses in the self-storage industry today, along with some key data to back them up.
Self-storage has a unique ability to weather economic ups and downs. During the 2008 financial crisis, the industry saw only a minor 1.1% drop in occupancy rates. Similarly, during the COVID-19 pandemic, the industry maintained stable demand, and by the end of 2021, the national average occupancy rate hit a record 94.5% . This is because in both good and bad times, people need storage—whether they’re downsizing during a downturn or need extra space during prosperous times.
With more people moving, downsizing, or adopting remote work, flexible storage solutions are in demand. Self-storage facilities offering month-to-month leases and easy access have become a go-to for many. In fact, demand for self-storage has grown 3.5% year-over-year, driven by customers looking for temporary and long-term storage options. Facilities offering convenient digital rentals and flexible terms tend to see the highest occupancy rates.
Technology is changing the self-storage landscape in a big way. Around 80% of customers now prefer contactless rentals and 24/7 gate access, according to industry surveys. Facilities that integrate mobile apps, smart locks, and automated payment systems are reducing labor costs by as much as 25%, allowing them to operate more efficiently while offering customers convenience and security. These innovations help keep both customers and facility owners happy.
One of the biggest strengths of self-storage is its low operating expenses. Operating costs typically range from 30-40% of revenue for self-storage, which is much lower compared to other real estate sectors like multifamily housing, where operational costs can hit 50-60%. Facilities often have low staffing needs, especially with the rise of unmanned facilities, reducing the overall costs while maintaining solid profit margins.
Self-storage is a scalable business. As demand grows, facilities can add more units or even expand to new locations. In 2023, the U.S. self-storage market reached a total of 2.3 billion rentable square feet. Franchises like Storage Authority are making it easier for investors to enter the market, offering proven business models and support systems. This makes scaling up in the industry more accessible than ever.
While the industry is growing, some markets are becoming oversaturated, especially in large metro areas. For instance, in cities like Los Angeles, there are around 9.4 square feet of self-storage per person, well above the national average of 7.3 square feet. Oversaturation leads to fierce competition, driving down prices and making it hard for new facilities to gain traction. Careful market research is key to avoiding oversupplied areas.
Development costs have been on the rise, with construction costs increasing by 5.8% in 2022 alone. Building a new self-storage facility now ranges from $35 to $65 per square foot, depending on location. This has been compounded by rising interest rates, which have jumped from 3% in 2020 to 6-7% in 2024. Higher costs and tighter margins mean developers need to be strategic about where and how they build new facilities.
Location plays a critical role in the success of a self-storage facility. Properties close to dense residential areas or high-traffic locations typically see higher occupancy rates. Research shows that facilities within a 3-mile radius of population hubs have 15-20% higher occupancy compared to those in more remote locations. On the flip side, facilities in poorly chosen locations may struggle with low occupancy, making it harder to turn a profit.
While self-storage has high demand, customer retention can be a challenge. The average length of stay for a tenant is around 14 months. This relatively short period means high turnover rates, requiring constant marketing to fill vacancies. Facilities that rely on heavy discounts to attract tenants may find that their customers leave once the promotion ends, leading to a cycle of high vacancy and lower revenues.
While self-storage has proven to be resilient, it is still vulnerable to economic and regulatory changes. Rising property taxes and stricter zoning laws can impact profitability and development plans. For example, California’s new environmental regulations have increased the cost of development by up to 10%. Additionally, during prolonged periods of economic stability, demand may flatten, leading to stagnation in occupancy and rental rate growth.
The self-storage industry continues to thrive, thanks to its resilience, scalability, and ability to adapt to modern customer demands. However, challenges such as market saturation, rising costs, and customer retention cannot be ignored. By understanding these strengths and weaknesses—and keeping a close eye on market trends—self-storage operators and investors can navigate the landscape more effectively and make smarter decisions for the future.
At Storage Authority Franchise we are a leading provider of comprehensive solutions for self-storage development and operations. With a focus on excellence and profitability, we empower franchise owners to achieve elite status in the industry as an alternative to consultants and 3rd party management. Our proven systems, expert guidance, and unrivaled support help self-storage facilities thrive and surpass all expectations. If you are thinking about self-storage you owe it to yourself to contact Kevin Harless at Kevin@storageauthority.com to learn more about the Storage Authority Franchise opportunity.
