The Psychology of Self Storage

Last week I was listening to a podcast on storage units (link here) and thought it was a great summary of the dynamics of self-storage and answers some of the more fun questions I get from investors (Is it really like storage wars? Where are the dead bodies? Etc.).

There are a few points I thought were interesting and want to expand upon.

1. Supply and Demand: There are approximately 52,000 self-storage facilities in the US and more than 20M individual units. In 2023, developers built over 49M square feet of new storage space. If we assume the average unit size is ~100 square feet, that is ~4.9M new units. It’s estimated that 1 in 5 Americans rents a self-storage unit which equates to 68M people. Despite an increase in supply, demand still outstrips supply even if these numbers are a little overstated. We believe this to be especially true in markets with high barriers to entry which is why we have focused on California (as much as people want to hate, it’s hard to get entitlements here!) and other infill west coast markets such as Salt Lake City.

2. Fragmented Market: As we discussed with our focus on the middle market ($7-15M size transactions), we are focused on fragmented non-institutionalized markets. Despite consolidation in recent years and increased attention from institutional investors, two thirds of facilities are still owned by smaller operators. We believe our data driven approach to identifying mismanaged properties in our target market will continue to unearth exciting opportunities like the off-market deal we currently have under contract.

3. Psychology of the Renter: This one always gets me. Most people who rent a storage facility go in thinking they will need the unit for a few months. While it varies by market, Extra Space says their average tenant stay is 14 to 16 months. In our portfolio it’s over 3 years. Either way, it’s way more than a few months. This suggests a higher lifetime value of our customer than you might initially think.

4. The Stuff: The “stuff” that people put in storage has changed. Baby boomers store memories but millennials (now the largest demographic of storage users) and Gen Z’ers view it as an extension of their apartments and homes. Assuming America stays a consumer society and rising housing costs continue to push the younger generation into apartments for longer, storage demand will persist and possibly increase in coming years.

Interesting podcast and worth a listen. Hope you all have a great week!