The U.S. self-storage sector will continue to exhibit strong growth in 2013, driven by consumer demand, rising rental rates and a limited supply of new facilities, according to a new report from Moody's Investors Service, a provider of credit ratings, research and risk analysis.
"The industry's underlying dynamics will likely be strong for the next three to five years," said analyst Alice Chung. "The sector is benefitting from two factors: short-term leases and a diverse customer base. And it also has a low break-even rate, which boosts profitability."
Short-term leases allow operators to respond to market changes quickly and easily, while a diverse customer base helps limit the risks of exposure to a single tenant or too small a number of tenants, Moody’s officials said.
The report, "Self-Storage Industry Is Poised for More Growth," also indicates that storage from business customers is increasing, providing additional occupancy stability and longer average rental terms for operators. The industry is also benefiting from a growing number of so-called "echo boomers," those aged 18 to 34, who are renting apartments rather than buying homes, thus leaving them without adequate home storage.
Self-storage real estate investment trusts (REITs) continue to be in a stronger position than small, independent operators, due to increased outsourcing of third-party management functions to the REITs and continued industry consolidation, Moody’s officials said. The larger REITs will likely continue to benefit from further consolidation, although acquisitions will take place at a measured pace, according to the report.
"Moreover, compared with other real estate asset classes, the self-storage companies fared well during the Great Recession of 2008-2009, proving that they can weather economic troubles," Chung said.
The six-page PDF report can be purchased at Moodys.com for $550.