The self-storage sector has continued to perform well even during times of economic uncertainty and tends to be less affected by economic fluctuations. The sector’s demand is highly driven by life events which occur regardless of the economic environment known as the four D’s: death, divorce, dislocation and downsizing. Learn more as Rahul Sehgal, chief investment officer at Inland Private Capital Corporation discusses the sector’s adaptability and overarching strengths in this video.
Rahul Sehgal 00:12
Over the past few years, the self-storage industry has experienced remarkable growth, driven by various factors including urbanization, downsizing, and an increasingly mobile society. Recent economic challenges, such as sustained interest rate hikes and a slowdown in the housing market have led to a slight cooling in demand, having some questioning the sector’s continued resilience. Amid these challenging market dynamics, We believe self-storage remains well positioned for the future with several key factors contributing to its continued growth.
First, the self-storage sector has historically demonstrated a unique ability to withstand economic fluctuations, as it tends to be less sensitive to economic downturns compared to other traditional real estate sectors. Even during periods of economic uncertainty, people will always require storage space for various reasons, which we call the four Ds death, divorce, dislocation, and downsizing. These life events and demographic demand drivers occur irrespective of the economic environment. In fact, the average self-storage space used per person has increased from six square feet to between 10 and 13 square feet in just the last few years. And even though household storage utilization has increased from 3% in 1987 to approximately 10% today, this is still extremely low.
Second is the sector’s reliance on short-term leases, which helps adapt and respond to inflationary pressures. As we’ve seen historically, short-term leases allow self-storage operators to adjust their rental rates more frequently to keep pace with inflation. And while most think of self-storage usage is highly transitory, approximately 53% of tenants rent their units anywhere between seven months to five years. This low sensitivity to potential pricing adjustments is also due to the relatively low monthly cost when compared to other monthly expenses, including a mortgage or rental payment, car payments, student loan expenses, as well as internet and cell phone costs.
Third is the sector’s adaptability and innovative ways of responding to changing consumer needs. Today we’re seeing this adaptability and action as the sector evolves to cater to a broader range of customers. Businesses and retailers are increasingly utilizing self-storage for inventory management, and even the growing e-commerce industry is requiring self-storage space for their operations. This diversification of demand helps mitigate any potential slowdown in traditional storage usage.
Finally, demographic shifts including urbanization and changing household structures are likely to sustain demand for storage solutions. As cities continue to grow and living spaces become smaller, the need for external storage options will persist. Moreover, technological advancements are reshaping the self-storage landscape. Digital platforms are making it easier for customers to find and manage storage units, improving the overall user experience and expanding market reach. This integration of technology enhances operational efficiencies and customer engagement. Self-storage inherent strengths, and adaptability continue to position the sector well as a long-term investment opportunity.
Inland Private Capital is a sponsor of The DI Wire, and the video was published as part of their standard directory sponsorship package.