Is there Reason for Concern in the Self Storage Industry?

Investing money is always a rather tenuous undertaking. The notion of turning whatever sum of money you have into something much larger is enticing to even the most skeptical investor. However, when the economy is poor and the stock market experiences major disruptions like it did recently, one has to wonder if your money is safe anywhere.

Even though the economy has been done the last few years there has been one quality that has been consistent in industries that are doing well—a temporary nature. Apartment buildings have been safe investments (existing ones; not new construction) as has the self storage industry.

On any given day you can find stories on the internet about self storage companies selling for millions of dollars. New construction has been stagnant; banks aren’t too willing to give loans for new construction. Existing buildings are another matter though.

For example, one of the leaders of the industry, Extra Space Storage, purchased 24 facilities for $84.8 million with plans to purchase another $240 million by the end of the year.

While news of this nature is encouraging, the fact remains that the market dropped 513 points is reason enough to be concerned, no matter what the industry is.

“Self storage’s performance over the past couple of years has reflected the downturn in the national economy; however, most recently, it appears that self storage is more resilient than everyone thought,” Says Charles Ray Wilson, an industry expert with the Self Storage Industry Group. “This industry is noe in recovery well ahead of most other real estate sectors.”

The nature of the business is perfectly suited for success in poor times. With many people forced to downsize their living arrangements, there is a need for some place to temporarily store their belongings.

Self storage operators find it a little easier to raise revenue than some businesses. Since people are likely to be using the unit for some time, if the facility increases rent a few dollars they are not likely to leave. If a facility with 1000 units increases rent just $5 dollars, that’s an additional $5000 in revenue without obtaining any new business.

“If someone has goods at self-storage, whether it’s because of moving, divorce, college or whatever, a company can increase their rent from $105 to $110 and they won’t move out for that. But if you do that for 40,000 customers a month, that’s a major impact on earnings,” Marc Borstein with MJ Partners says.

While that may not be much in the broad scheme of things, when the economy is undergoing tough times it can be what is needed to keep a business afloat. When business does pick back up your profit margin will increase even more!

So should there be concern for the self storage industry due to the stock market? Absolutely not.

Sources used:

“Self Storage Firms Join Apartments in Success.” GlobeSt.com; 12 August 2011.

“Self Storage and the Stock Market See Saw: Will Our Industry Be Affected?” Inside Self Storage; 05 August 2011.