How Self-Storage Facilities for Sale Provide Recession-Resistant Investments
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The US self-storage facility market was worth $43 billion in 2023 and is expected to grow to over $48 billion by 2028. Much of this growth is driven by increasing consumer demand and the simple fact that, well, Americans own a lot of stuff.
High self-storage demand often translates into great opportunities for commercial real estate investors. Why go looking to buy self-storage facilities for sale at all? Simple: They provide relatively recession-resistant investments.
As such, they make for reliable commercial real estate investments, even when the market is down. Let's look at some other benefits and characteristics of buying self-storage facilities for sale.
What Is a Self-Storage Facility?
A self-storage facility contains individual storage units meant to be rented out to people and businesses for their storage needs. Self-storage provides an alternative for those looking to store items they might not otherwise have the space for.
Each storage unit is a self-contained structure that is separate from the others. Storage units range from simple metal structures to complex units with climate control mechanisms for cold storage. In addition to the units, self-storage facilities usually include offices and common areas.
How Can You Make Money From Owning Self-Storage Facilities?
The primary way to make money by owning self-storage facilities is by renting those storage units to individuals and businesses.
Self-storage rentals are typically on a month-to-month basis, though some facilities allow both shorter and longer rental terms. Self-storage facilities also make money from equipment and storage rentals.
For example, some facilities will rent moving equipment or sell moving supplies, like boxes and packaging tape.
Costs to Buy a Self-Storage Facility
Just like any other type of commercial property, the costs of buying self-storage facilities for sale vary heavily from state to state: A small 12-unit self-storage facility in a rural area may only run about $300,000, but a multi-story storage complex near a larger urban area can cost over $10 million.
Make sure you pay attention to the following self-storage metrics to make the best purchase decision.
#1 – Occupancy Rates
Current occupancy rates can give you a good idea of a facility's monthly cash flow. You can measure occupancy rates either by unit or by the total number of rented square footage.
It's easier to ease into owning a self-storage facility if it already has paying tenants.
#2 – Square Feet Per Capita
Square feet per capita is a measure of how saturated the market is for self-storage. Take the available self-storage space in a three to five-mile radius and divide it by the population in that same area.
The national average is 7 square feet of self-storage per capita, so a per-capita measure above 7 indicates an oversaturated market and a per-capita measure below 7 indicates an undersaturated market.
All other things being equal, self-storage in an oversaturated market should be valued less.
#3 – Population Growth
You also need to consider population growth in the nearby area. Higher population growth rates usually mean more competition for storage unit space, especially if local storage occupancy rates are already high.
Costs to Build a Self-Storage Facility
According to MakoRabco, a company that specializes in self-storage construction, average costs for building self-storage range between $50 to $65 per square foot for single-story storage and between $85 and $110 for multi-story self-storage. Note that this estimate does not include land costs.
Regardless of where you're at in your journey of buying self-storage facilities for sale, you should work with a commercial real estate broker. A broker on your investment team can help you identify the best properties from an investment perspective and handle seller negotiations.
How Profitable Is Owning a Self-Storage Facility?
Projections for self-storage profitability range significantly from about 10% to 41%, depending on the type of storage, location, and facility management. Given an industry-wide average profit margin of 7%, even lower estimates for self-storage profitability are above average.
One downside of buying self-storage facilities is that specialized properties are often difficult to repurpose: If the self-storage facility doesn't work out, it can be hard to convert the building for a different real estate use.
Why Are Self-Storage Facilities Considered Recession-Resistant?
Self-storage facilities have long been recognized as assets that are highly resistant to recessions for a number of reasons.
#1 – Stable Demand
Most types of commercial property, especially office space, tend to really feel the effects of economic downturns, but there's evidence that self-storage performance actually increases during a recession.
The main reason is that people tend to move and downsize during economic downturns. They have to put all their stuff somewhere, and many choose self-storage options.
The four “Ds” of self-storage demand are downsizing, dislocation, death, and divorce.
#2 – Low Operating Costs
Self-storage facilities also have relatively few management and upkeep costs. The most important ones are utilities, storage unit insurance, and maintenance. You can expect to spend about $2 to $4 per square foot per year in operating costs.
Labor costs for self-storage are low: It usually doesn't take many employees to staff a facility.
#3 – Multiple Income Streams
Unlike a single-occupancy commercial property, self-storage facilities receive multiple streams of income from renters.
Even though monthly rents might be lower than those charged for a larger commercial space, the lower rental income per unit means it's easier to absorb losses when renters leave.
#4 – Flexible Rental Terms
Unlike multifamily or other kinds of commercial property, there are relatively few restrictions on self-storage rental agreements.
This gives you a lot of freedom to adjust rental rates and amenities depending on your cash flow, operating costs, and other business financials. The short-term nature of self-storage rentals means it's relatively easy to fill rent rolls.
Is Buying Self-Storage Facilities for Sale a Good Idea?
Yes, buying self-storage facilities for sale can be a great idea as self-storage demand is consistent, self-storage operating costs are low, and self-storage rentals are flexible.
Compared to other businesses, self-storage facilities have a very high estimated success rate of 92%. Self-storage real estate would make a good first-time commercial real estate investment: It's usually affordable and easy to manage.
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