As many industries have been battling to survive through the recession, self storage has made impressive, steady gains that investors are getting excited about. Once mostly fueled by lifestyle changes such as divorce, death or moving, self storage is being used by a much broader range of people and for a wider range of circumstances. As a result, the four publicly traded self storage REITs generated total returns of about 30 percent last year, with the first quarter of 2011 exhibiting similar strength at about 10 percent.
In comparison, the equity REIT sector as a whole posted returns of 28% in 2010, while the average total return for companies traded on the Dow Jones Industrial Average was 13.8%. The largest players in the self storage sector include publicly traded REITs Extra Space Storage Inc. (NYSE: EXR), Public Storage (NYSE: PSA), Sovran Self Storage Inc. (NYSE: SSS) and U-Store-It Trust (NYSE: YSI). These large players in the self-storage industry are forecasting a 2% to 3% increase in same-store sales growth in 2011, and an even better increase in net operating income in the coming year.
However, the industry is fragmented and many self storage operators are small businesses that may own two or three facilities. With so many small operators, industry consolidation makes sense, said self storage sector specialist R. Christian Sonne, managing director at commercial real estate consulting firm Cushman & Wakefield. Currently, there are about 50,000 self-storage facilities in the country. The top 10 largest firms in the industry, including the four public REITs, own only 13% of the total self-storage market, according to National Real Estate Investor.
“There are not many quality institutions,” Sonne said. “Some are buying aggressively with 20 at a time, and some are trying to compete purchasing 50 or more. “But it’s difficult to put them together when there’s limited availability and a lot of players trying to get those portfolios.”
Also boding well for self storage, the industry is the very lowest of all asset classes in terms of distressed assets. Investor interest is rising precipitously with many new players looking to get involved in the self storage business, including hedge funds which like the steadiness of the asset class. Sonne said the availability of debt and equity, combined with the asset class’ performance, has compressed cap rates in the self storage sector.
National Real Estate Investor reports "top self-storage owners are now moving full steam ahead with solid balance sheets and a formidable plan for growth as occupancies and rents show signs of improving." "The group of publicly traded self-storage REITs is a small club by REIT standards," according to the publication. Combined, the four self-storage REITs account for a total market capitalization of about $23 billion, a minute fraction of the $413 billion equity REIT industry.
Internet marketing and technology has enabled major self storage operators to generate increased revenue from online booking and competitive pricing. The competition’s pricing and promotions can be constantly monitored through the internet.
Chappel, Carissa. “Self Storage REITs Building Momentum in 2011.” REIT.com. April 8, 2011.
Finkelstein, Alex. “Unglamorous Self-Storage Industry Dazzling Investors With 30% Returns.” World Property Channel. April 12, 2011.