America’s culture is shifting to a “Done-with-you” system instead of the traditional “Done-for-you” and “Do-it-yourself” models. That’s because most Americans do not want to give up their sense of control on paper. The COVID-19 crisis showed Americans just how bad life can be when things are out of their control. Businesses across America are returning to an old-school “Just-In-Case” inventory management system as people prep for more economic uncertainty. Most people prefer to rent in cities that have buildings with a wide selection of amenities rather than own a property outright and be forced to deal with maintenance. What they save on the cost of rent they apply towards the cost of decluttering.
Millennials are not subscribing to the traditional “American Dream” of owning their own household. Those with kids take up less than 18% of large homes no matter where they live, and a new Redfin survey found that 12% of millennials “Believe they’ll never own a home [because] they are not interested in homeownership.” Millennials have yet to realize the need to declutter their homes as most are either in the middle of raising their families or are just beginning to start them. It’s becoming much harder for those seeking homeownership to afford one. Even if 12% of millennials don’t see that as a life path, 88% do. The question becomes, are millennials forced to downsize, or are they choosing to?
If we look at traditional homeowners, empty nesters own twice as many large homes as millennials with kids! They are reported to take up at least 20% of every large home in the US. Why would an empty nester need such a large home? It becomes a necessity to spread out all of the clutter built up over the years. With a spike in interest rates, a largely paid-off home, and the need to move somewhere new for retirement, it’s becoming clear that logistical inefficiencies are on the horizon. The need to downsize is profound.
Despite being a traditional business-to-consumer model, when we look at eCommerce activity, self-storage is only becoming more popular. 20.1% of retail purchases are expected to take place online in 2024 with sales expected to grow 8.8%. As a result, we see that demand for warehouse facilities and self-storage space is expected to grow. Americans are looking for additional sources of income and are flocking to eCommerce business models like Amazon FBA to add more cash flow. Side-hustle culture takes up a lot of space, and we see the long-term demand for more storage facilities for those who market their products successfully.
The self-storage industry will continue to benefit from these dilemmas as long as America remains a country founded on consumerism and individualism. The need to declutter is innate in every self-governing person, while the intrinsic value certain objects hold throughout the years is worth more than tossing them away in the trash. What better way to fuel this “Hoarder Mentality” than by offering Americans a storage solution for only 10% more on their rent?
Rental prices have recently cooled because of oversupply, rising interest rates, higher property taxes, and materials costs. The CEO of Extra Space Storage, Joe Margolis, said on a quarterly call that “The industry as a whole will likely face headwinds from lower new customer rates in the near term.”
The long-term trend is clear. People are not willing to relocate all their possessions to save a few hundred dollars a year. The truth is, when someone puts their belongings in storage, they forget about them. S&P Global Market Intelligence found that self-storage occupancy averaged 96.5% in Q3 of 2021 compared to 91.5% in Q1 of 2020. As a result, even if sales growth is slow in the short term, the recurring revenue model of these large-scale operations pays for itself.
Most publicly traded companies have gross margins of at least 40%, and privately owned facilities can achieve far superior returns. The industry is still very fragmented with 37.6% of self-storage facilities owned by the “Big Five,” 40.2% owned by small family-owned businesses, and the remaining 22.2% owned by SMEs with more than 500,000 square feet of self storage space. This is a growing industry that will soon consolidate once interest rates lower.
According to Real Estate Daily News, “Over a recent nine-year span, self-storage facility owners across the US saw an annual return on their investments of almost 17%.” We find that with about 1 in every 10 Americans paying for self-storage, estimates of the industry growing by 40-50% over the next two years from $44.33b to $64.71b is possible but a bit far stretched. Developments in technology and construction practices are only improving, justifying the building frenzy before the spike in interest rates.
If the Fed begins to cut, this industry will see a large spike in demand likely propelled by private equity firms looking for their next rollup. Green Mountain Advisers sees this as a clear win for consumers. Inventory management systems will operate more efficiently, and people will be able to pay cheaper rates to store more of their stuff. Economies of Scale is a beautiful thing.
References
- https://www.redfin.com/news/empty-nesters-own-large-homes/
- https://www.forbes.com/advisor/business/ecommerce-statistics/
- https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/self-storage-occupancy-gains-to-taper-off-leading-to-growth-slowdown-67786868
- https://www.sparefoot.com/self-storage/news/1432-self-storage-industry-statistics/
- https://forgebuildings.com/2024-self-storage-industry-growth-projections-and-trends/
- McLeod, A. (2022, June 23). Inside Self Storage. Retrieved from Insideselfstorage.com: https://www.insideselfstorage.com/market-conditions/can-self-storage-performance-strength-last-here-s-an-outlook-for-the-rest-of-2022
