Self-storage outperformed again in 2021, with sales volume increasing 180% from $8.4 billion in 2020 to $23.6 billion, according to the Real Capital Analytics, a provider of data for commercial real estate investing and transactions. In fact, the industry has experienced steady growth over the past 30 years, benefitting from long- and short-term societal trends.

In recent years, more Americans have become increasingly comfortable with moving across the country, which was accelerated by the COVID-19 pandemic. This has amplified the demand for storage. Today, 10.6% of households rent a self-storage unit, according to Storable, a provider of industry technology. With much of the workforce shifting to remote working, this has allowed people to move to different cities or required them to make more space to work from home.

Along with people's evolving relationship with their living space, the increased cost of housing and accelerated trends in net migration have built demand for storage in growing markets nationwide. With appealing long-term dynamics and proven resiliency through economic cycles, self-storage is performing at an all-time high. But can this trend last? All indicators point to yes. Let’s look at why the industry is to continue on this trajectory in the coming months.

Comparison to Other Real Estate

Self-storage arguably outperformed all sectors during the pandemic, with real estate investment trusts (REITs) posting a 70.4% return from March 2020 through November 2021. According to the National Association of Real Estate Investment Trusts, self-storage outpaced industrial, retail, office, healthcare and all other REITs. It posted the most vigorous sales growth last year in terms of dollar value, with activity up $15.2 billion from 2020. Portfolio and entity-level sales drove most of the growth, with bulk-portfolio dispositions totaling $9.4 billion in the fourth quarter alone.

With apartment rents in major markets surging 14.2 percent in 2021 and single-family home prices rising 15 percent, people are moving into smaller living spaces and leasing storage units. Overall, rents remain well above average on a year-over-year (YOY) basis. National rates for 10-by-10, non-climate-controlled (non-CC) units increased 5.8% YOY in March and climate-controlled (CC) rents grew 6.6%, according to Yardi Matrix, which provides data on multiple asset classes. As of this writing, street rates for non-CC units sit at $128 per month, while CC units command $146 monthly, on average.

Rent growth was positive in all major metros, with 25% of the top 31 metropolitan statistical areas recording rent growth at or above 10% and 22 of the top 31 metros at 5% growth or more for non-CC units. For CC units, five of the top 31 metros had 10% rent growth, and 12 recorded 5% growth or less YOY.

The strongest-performing markets are high-growth metros in the South and West, led by Miami (16.7%), Atlanta (15%), Phoenix (12.5%) and Tampa (11.9%). So long as fundamentals remain robust, self-storage rents are projected to increase in the third quarter, specifically in cities like Los Angeles, where caps were placed on residential rent increases in late 2021.

New Development Activity

More than 3,300 self-storage properties have been built in the United States since 2010, with more than half of them completed since 2018, according to CoStar, a real estate information company. There are currently 3,992 facilities in various stages of development, 726 of which are under construction, 1,410 in planning and 554 are prospective developments. However, given the rising material costs for construction, competition for labor and slow municipal-approval processes, development competition may be deterred. The total number of self-storage properties in the U.S. stands at more than 50,000, according to Storage Café, a consumer directory of self-storage facilities.

The self-storage market was valued at $48.02 billion in 2020 and is projected to reach $64.71 billion by 2026, with a compound annual growth rate of 5.45%. These metrics are impressive from any investment standpoint, and the concerns surrounding oversupply are less apparent as demand has largely absorbed new product. Emerging markets with considerable population growth and large gateway cities will continue to offer new development opportunities.

Industry Outlook

The self-storage industry is less sensitive to economic shifts, as demand for the product exists during economic downturns (people downsize or move in with family) and when the economy is strong (more disposable income and heightened demand for commercial users). As such, its facilities hold value better and recover quicker during weak periods.

There’s now more capital than ever chasing self-storage deals, with institutional funds and private-equity groups entering the space with hundreds of millions of dollars to place. Though interest rates are set to rise in 2022, capitalization rates should see little to no change in institutional-quality investment opportunities.

With exceptionally high occupancy rates in place, most self-storage operators began spring leasing with pricing power to increase rates and bring current leases up to market rates. It’s unlikely rent growth will match that of last year’s 8.5%, but Yardi analysts anticipate strong overall growth this year. Despite the difficulty of matching a year like 2021, the industry is still poised to outperform other asset classes and attract investors from every commercial real estate sector.

Austin McLeod is associate vice president of Matthews Real Estate Investment Services, a commercial real estate investment services and technology firm. As an investment-sales specialist, he advises clients in the acquisition and disposition of self-storage facilities. Primarily focused on the Southeast, he works with a range of customers including private investors, developers, private-equity funds and institutional-investment firms. To reach him, email [email protected].