The General Outlook is Good
The economy in general is doing well, and this is expected to continue through 2019. Most of those in the self storage business are optimistic that business will remain good for the remainder of the year. During the past several years there has been a boom in the self storage industry, both portable and brick and mortar storage. This has coincided with an economy that, overall, has been robust and seen growth in many different sectors. During the last year, however, construction in the self storage industry has slowed slightly and both owners and developers will need to keep this in mind when creating and adjusting their business plans through the rest of the year and beyond.
The Need to Understand Private Verses the Public Sector
Private business has been and will continue to be the major source of income for self storage units. With record low unemployment rates, the economy is currently supporting more business expansion. This will likely mean private business will be a lucrative area that those in the self storage industry can focus on. Self storage is a cost-effective option for most business owners when compared with the costs of retail or office rents. Owners will need to make private business a priority when creating their marketing and overall development plans, while still keeping in mind the needs of individuals who are in the market for self storage.
The Importance of Valet Self Storage
Valet self storage is one of the hottest trends in the storage market. Companies that provide this type of service will pick up their customers' items from their office, warehouse or home. This type of service is also referred to as full-service self storage or private storage. Both businesses and individuals are often willing to pay more for the ease and convenience of these types of prime services. This type of service often provides other extras such as wrapping, professionally packing the items, and providing special care for fragile items. Transporting items can be expensive and time consuming, making valet self storage an incredibly lucrative niche market for some owners. These customers are also often interested in climate-controlled storage as well. These are specialty areas that developers and owners can focus on if they want to provide top of the line services to high-paying customers.
Management Styles are Changing
There have been fewer mom-and-pop self storage owners in recent years and that has changed the face of the self-storage industry. With an increase of larger companies and developers came a more professional type of management that didn't provide as much interaction with customers as before. The 10 largest companies in the industry currently have 32 percent of the market share. Having 3 to 100 stores is considered mid-sized, and there are hundreds of operators that fall into this category. Approximately 26,000 owners are currently operating a single facility. No matter what the size of the company, during the last few years more self storage owners have become more hands-on and have been providing a lot more options for their customers. Whether it's on-site or helping customers with portable storage, the need for this type of management style will likely continue into 2019 and beyond.
Customer Service is Evolving
There has historically been little to no customer service in many of the self storage units of the past. This has been especially true of large and mid-size companies. The most successful large or mid-size storage companies will be those that provide many services in a professional manner while still being able to connect to the customer like a small business owner. Better customer service, along with a variety of ancillary services, is now one of the main priorities for those looking for self storage units. Ancillary items that consumers want and many facilities are providing include moving vehicle rentals, moving supplies, and a variety of boxes. Even selling insurance and car wash facilities are products that self storage owners are offering their customers. Companies being able to integrate personal customer service, such as helping individuals choose the right portable storage unit for their property, will continue to be driving forces in the self storage industry. While engaging in higher levels of interaction with their customers and providing convenience and individualization, owners will also have to balance an increasing amount of automation and technology.
There is Increased Automation
Technology is advancing at a rapid rate, and the self storage industry is taking full advantage of increased automation. This means that some self storage units may not need a full-time property manager. An automated or partially automated property will eliminate the need for constant supervision. This will save a company money by eliminating the full-time salary and benefits of a property manager. There are downsides, however, that a company will have to keep in mind. For starters, an automated system will likely not be able to up-sell to customers as effectively as an employee working on-site. The same goes for selling ancillary items such as insurance or boxes. An owner will have to figure out whether cutting costs by not having a salaried individual on site is worth the loss of up-sells and ancillary items. If those things are not something that a company makes much money on, it may be worth it to have as much automation as possible.
Facilities Have Changed
Self storage facilities of the past have primarily all looked the same. They would usully include several rows of single story buildings made of metal and painted orange. Self storage units have come a long way from this type of look. Today they often resemble the type of buildings and styles that are in the surrounding neighborhood. Many units now feature upscale exterior designs and beautiful architecture. Attractive self storage facilities that fit into the current landscape and architecture of the neighborhood is almost certain to continue, and may even be a necessity in some areas. In recent years more lawsuits and angry neighborhood associations have tried to stop the construction of self storage units near their homes. Building attractive buildings and landscaping is a way to adapt and earn the approval of the surrounding neighborhoods. Developers will need to do a more careful analysis of the areas where they hope to build so their units will fit in well with the surrounding buildings and landscape. This will include designing attractive portable storage units that blend nicely into neighborhoods.
Portable Storage Options
Just as facilities have evolved, so have the methods for storing items. Portable storage provides customers with the ease and convenience of having a storage unit on their property. Portable storage can be used to store everything from household and seasonal items to garden supplies and tools and materials that may be needed when a customer is working on a remodeling project. Portable storage units come in a variety of sizes and can be kept on the customer's property for only a few days or as long as they're renting the storage unit. Owners that want to offer this option will need to make sure they have enough staff and vehicles to transport the storage units. It will also be necessary to have enough space to store the units if and when customers decide they no longer want the units on their property. It's also important to understand the demographic owners are marketing to. Those in rural areas would likely want larger portable units while those in the city or suburbs would need smaller ones. Different types of permits and insurance will be needed when transporting storage units.
The Importance of Both Millennials & Boomers
Using technology in the self storage sector will allow owners to attract more Millennials. This demographic is accustomed to accessing all types of services online through apps. Self storage will be no exception. Self storage companies that have attractive, easy to use apps will gain an advantage in this area of the market. While self storage companies will want to pay close attention to Millennials, Baby Boomers will continue to be very important. It's estimated that approximately 10,000 Boomers turn 65 each day. This is expected to continue for at least 15 years. This means that tens of thousands of individuals and couples will be downsizing for many years to come. This also means that self storage companies will want to continue to market to this group and pay attention to the types of things they are looking for. Downsizing is one of the biggest reasons that people look for and use self storage units. Sometimes those who are downsizing will want portable storage units that can be kept on their property for easy access to their items.
Financing Will Likely Remain Stable
The 10-Year Treasury went over 3 percent in 2018, but with it recently dropping it's providing a good start for 2019. The debt market is currently competitive and offering a variety of options for investors. With the values and cap rates in most markets not expected to compress any further, the storage industry is expected to grow at a sustainable pace throughout 2019. Sellers, however, shouldn't hold out too long because the investment market will likely turn downward at some point.
There Will Likely be More Lease Up Deals
Certificate of Occupancy deals, or what is known as C of O deals, are pretty much a thing of the past. This was a short-lived real estate trend that may have worked out well for those who sold one. During the last year, however, less than five of these types of deals closed nationwide. With the costs of construction increasing, expensive entitlements, and higher real estate taxes, it's now very difficult to build storage units this way. Lease up deals, however, should be the way many investors will go this year. Rising taxes, higher operating expenses, and rents being off in some markets by up to 30 percent has caused major concern for some developers and owners. Even though developers underwrite two or three years for the project to stabilize, it may actually take several years longer because so many new facilities have been built. Lease up deals are obviously risky and many developers and owners may not want to take the chance. Stabilized deals will likely continue to be the standard type of investment for self-storage.
Rental Rates Are Mixed
Across the country there has been a general increase in the rates to rent self-storage units. The fact that most self storage units are filled to capacity means that in some areas owners have the option of raising rates. Self storage rental rates basically rise and fall with the rates of general rents and the housing market. For example, those cities with the highest apartment and housing rental rates normally see higher rates for self storage units as well. In the United States, New York City, followed by Miami, and then San Francisco are the most expensive cities on average for self storage. In contrast, the most expensive cities for general rent are San Francisco, followed by New York. Miami is tenth on the list. While there are a few slight differences, it's safe to assume that as housing rates go, so does the self storage market. Note that Radius Insider members have access to data in real-time.
These are some of the primary trends that developers and owners should expect to see during the next year and beyond. Each self storage business is different and which trends will apply won't be the same for each. Whatever type of self storage business a company has, it will be necessary to monitor the market as well as customer behavior to know which direction to take the business.
Self storage facilities of the past have primarily all looked the same. They would usually include several rows of single story buildings made of metal and painted orange. Self storage units have come a long way from this type of look. Today they often resemble the type of buildings and styles that are in the surrounding neighborhood. Many units now feature upscale exterior designs and beautiful architecture. Attractive self storage facilities that fit into the current landscape and architecture of the neighborhood is almost certain to continue, and may even be a necessity in some areas. In recent years more lawsuits and angry neighborhood associations have tried to stop the construction of self storage units near their homes. Building attractive buildings and landscaping is a way to adapt and earn the approval of the surrounding neighborhoods. Developers will need to do a more careful analysis of the areas where they hope to build so their units will fit in well with the surrounding buildings and landscape. This will include designing attractive portable storage units that blend nicely into neighborhoods.