Why You Need to Invest in Self-Storage in 2023

Feb 03, 2023

The self-storage industry is an ever-expanding business venture that has seen incredible growth throughout the course of three recessions, multiple booms, and just as many busts. At first glance, it seems like a fluke, but by looking deeper at the potential of self-storage it's no surprise that it's been the top-performing commercial real estate sector for over 26 years. So, the question isn't about the potential of self-storage, but rather what makes self-storage such a great investment during such volatile economic conditions?

 Past Performance of Self-Storage

As stated, self-storage has maintained its growth and demand over the years, even during recessions, growth booms, and busts. In fact, self-storage has been the top performing commercial real estate sector for over 26 years. This is because self-storage has been growing and demand has been growing with it. The industry has also changed a lot over the last 10 years, with a dry-up of all funnel activity through new development. But before 2020, that started to pick up.

 The Impact of COVID-19 on the Self-Storage Industry

The recent COVID-19 pandemic brought new challenges to the self-storage industry. We saw a pause to new development and many deals that had been slated were taken off the table. However, the industry bounced back and has since ramped up to the extent that we are now seeing a growing demand for self-storage. This is because during the uncertainty of COVID-19, many people were holding onto capital and withholding projects. Now, things are starting to pick up and we are seeing a resurgence in the self-storage industry as a result.

 Why Self Storage is a Great Investment in 2023

By taking a closer look at the industry, it is easy to identify specific contributing factors to the impact self-storage investing has had.

  1. Strong demand: The demand for self-storage is growing. People are moving more frequently and downsizing their homes, leading to a need for more storage space. Additionally, e-commerce is on the rise, leading to more people needing storage space for their online purchases.
  2. Low vacancy rates: Vacancy rates in the self-storage industry are low, making it a great time to invest. This means that there is a high demand for storage space, leading to higher occupancy rates and higher rental income.
  3. High returns: Self-storage properties can provide high returns on investment. According to a Motley Fool article, self-storage properties can provide returns of 10-15% on average.
  4. Recession proof: Self-storage is a recession-proof industry, as seen by its performance during previous recessions. This means that investing in self-storage can provide a level of stability during uncertain economic times. According to a report by IBISWorld, the self-storage industry has seen a revenue growth of 4.5% annually over the past five years. 
  5. Tax benefits: Investing in self-storage can also provide tax benefits, such as depreciation and deductions for repairs and maintenance.

It's worth noting that the self-storage industry is not just limited to traditional storage units. A growing trend in the industry is a pivot towards climate-controlled units, drive-up units, and even outdoor storage for vehicles and boats. This diversification in the industry can provide investors with more options and potentially higher returns.

 Another trend to keep an eye on is the ever-increasing use of technology in the self-storage industry. Technology plays a key role in a successful self-storage investment. Automation allows for less hands-on supervision which leads to more freedom to grow storage facilities. Many self-storage facilities can be run with a small staff and can even be self-managed by the owner. This can provide a level of flexibility and autonomy that other investments may not offer.

Technology isn't just limited to automation. Technology advancements in the industry also includes online reservations and payments, mobile friendly websites, and even virtual tours of storage units. By investing in a self-storage facility that utilizes technology, investors can potentially attract more customers and increase efficiency.

However, as with any investment, it's important to do your due diligence and research the market before investing in self-storage. This includes assessing the location, competition, and potential for future growth. It's also important to have a clear understanding of the costs and revenue potential associated with owning and operating a self-storage facility.

 As stated, self-storage can provide many great investment opportunities in 2023 and beyond. Studies indicate that the industry has continued to flourish despite economic hardship with a projected CAGR of 3.5% between 2020 and 2025. According to the Self-Storage Association, the self-storage industry in the US currently has over 52,000 facilities, with a total of 2.3 billion square feet of rentable space.

With the growing trends in the industry, it's a great time to invest in this asset class. Strong demand, low vacancy rates, high returns, and tax benefits provide a unique opportunity for investors. Self-storage properties can be a great addition to any investment portfolio. With the demand for self-storage at an all-time high, there is no better jumping in point than now. When combined with recession-proof potential, high returns on revenue, and attractive tax benefits, investing in self-storage is a guaranteed investment opportunity.