What Kind of Self Storage Year Should We Be Expecting?

U.S. Residents Love Their Self Storage Units.

That remains good news for anyone investing in this sector of the commercial real estate industry. As the recently 2020 Self Storage Investment Forecast from Marcus & Millichap says, expect this year to be yet another strong one for the self-storage industry.

As Marcus & Millichap reports, the self storage industry reached a peak in 2018. That’s when a record-setting 67 million square feet of self storage space hit the country. After that record, deliveries of self storage space tapered off – but remains strong – in 2019. And Marcus & Millichap is predicting the same for 2020: There’ll still be plenty of self storage delivered in 2020, but the amount won’t match what hit the market in 2018.

However, there will be challenges in 2020, too. Marcus & Millichap points to the many years of elevated construction in this industry. Consumers today have plenty of options when it comes to storing their stuff. As self-storage owners compete for customers, many will lower their monthly asking rents. Marcus & Millichap says that tenants will enter these leases at lower rates and will rent their storage units for a longer term. At renewal, though, monthly payments will jump by as much as 10 percent.

Marcus & Millichap also predicts that the national self storage vacancy rate will rise by 10 basis points to a still-low 10 percent in 2020.

One of the more interesting tidbits in the report focuses on the conversion of vacant big-box retail space into self storage units. Marcus & Millichap says that more than 8 million square feet of space is expected to be converted to self storage this year across roughly 50 markets.

Marcus & Millichap also said that rising warehouse rents should benefit the self storage industry. That’s because the number of commercial renters – which already make up one-fifth of the tenant base of self-storage facilities – might grow as small businesses consider alternatives to renting more costly traditional warehouse space. The smaller space of self-storage units, along with the more affordable costs and shorter lease terms, offer an often favorable option for smaller companies.

Marcus & Millichap said that warehouse rents have risen by an average of more than 6 percent each year during the past five years. This might cause more companies to shift their needs to self storage units.