by Tony Gonzalez
August 1, 2011 1:40 PM
Over the last 15 years, the self storage industry has grown by approximately 65 percent; a rate of growth that is respectable for any industry. However, the rate of growth in new facilities has reduced dramatically over the last four years. Last year there were less than 250 new facilities constructed.
As the number of new facilities continues to decline, the make-up of the industry is going through a change. The self storage industry has typically been one comprised of small business owners that own their own facility or maybe a handful of them. For the most part, the industry is still like that. Just over 30,000 companies own 90 percent of the 46,500 self storage facilities in the country. Most of them own just a single self storage facility (27,650).
The top five companies own roughly 4,850 facilities around the country. If the current trend continues, more and more self storage facilities will be consolidated under the proverbial roof of fewer companies.
“I think there will be an acceleration of consolidation not only financially but operationally, and we are seeing some of that. But as we look at some of these older assets, there will also be a need for new assets to come in,” Spencer Kirk, chairman and CEO of Extra Space Storage Inc. said.
A large part of the reason for this trend is two-fold.
Thanks to the economy, many people have needed self storage facilities as they transition from one city to another in search for work or are forced to downsize their living arrangements due to financial issues. It doesn’t help that people tend to be pack rats; we don’t like to give up our stuff.
Combine the demand with difficulty in getting new construction loans resulting in limited development of new self storage facilities, and the only other option is for the existing ones to be renovated and/or upgraded.
Individual owners typically do not have the funds for major improvements. This has opened the door for real estate investment trusts to purchase (and essentially consolidate the industry) individual facilities and bring them under one roof.
According to Kirk, Extra Space Storage is taking another approach (as well as making acquisitions) by partnering with local operators.
“Perhaps where someone with specialized local knowledge comes to us and says, ‘We will you help us get this asset built, and then ultimately we want you to brand it as Extra Space and then manager it for us,’ ” he said.
Sources Used:
“Consolidation Coming for Self Storage Sector.” REIT.com; 01 August 2011.
2011 SSA Fact Sheet; Self Storage Association.