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16 Jan 2017

Unpacking the Truth About Self Storage Demand: Why the Industry May Have It Wrong


James de Gorter

Union Realtime

What drives self-storage-demand?

Urbanization is viewed as the driving factor that has led the industry to success. As such, the industry has focused its analysis on population growth and population density to try and understand the demand in the sector. Modeled around changes in urbanization (population growth and density of the urban regions) the sector has expanded into a considerable footprint consisting of ~24,000 facilities totaling ~1.4bn square feet in the top 200 U.S. urban regions alone. Given the consistent industry growth and the unclear drivers, we have set out to define the factors that move the industry forward.

The current demand framework is flawed

Though the industry has committed to using population growth and density as metrics for understanding self storage demand, from an analytic perspective, these show no correlation to self storage growth.

If we gauge the relationship between urban population growth and REITs revenues (-64% correlated), for example, we see a divergent directionality.

Similarly, there is limited statistical evidence showcasing a relationship between greater population density and storage prices. Our examination of the top 150 markets show no relevant correlation between self-storage SQFT per capita and the prices paid for an average 10’x10’ unit in the region (-23%). In other words, the data shows that population levels have limited impact on self-storage demand.

Migrants drive self-storage-demand

In 2014, SpareFoot, Inc., the largest self storage aggregator, conducted a market survey aiming to determine the motivating factor that led to the use of self storage. This survey reached 12,000 self storage customers and revealed relatively clear market drivers.

The data points collected convey that 68% of customers use storage facilities while changing residence (defined as migrants) and 32% store ‘extra things’ or items that require a controlled environment.

Migration and population are not the same

Not equating population to ‘life events’ is a major step towards understanding the sector’s success—the measuring factor for population differs entirely from what the survey reveals.

Instead, the industry ought to recognize that the majority of self storage customers are not there on account of population growth and/or density, rather demand is driven by the various forms of migration.

Payrolls hold the key to understanding migration

Two metrics have proven to be superior to understanding job relocation migrants: labor force flows and nonfarm payrolls.

Evolving the demand framework

Our aim is not to throw out the population metrics entirely, as they are well suited for developers and acquirers alike for reasons that deal with analysis and absorption of new supply. As we look at the overall growth of the industry, however, we are convinced that the demand framework must evolve from its current analysis measuring population and move towards tracking migration.

To help our clients prepare for the industry’s regional change in demand, we track the public REITs specific exposure to monthly payroll growth.

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