Is self-storage a lucrative profitable business?

Self-storage is widely considered a smart investment. It’s one of the fastest-growing segments of commercial real estate. Neighbor, a leading peer-to-peer storage operator in the United States, researched and compiled U.S. self-storage industry statistics and data. According to this research, the annual revenue of the self-storage industry in the United States in 2019 was USD 39.5 billion. It saw a nearly 50% increase in revenue since 2010.

These self-storage properties are not only a warehouse but also a small business. It’s proven to be a lucrative business and said to be more profitable than even apartment complex commercial real estate investments. At these storage facilities, people pay rent to store their stuff in units of various sizes. Some facilities diversify by adding outdoor/indoor RV & Boat storage as well as moving truck & equipment rentals which compliment storage. The items stored could range from documents to furniture and much more. Many small businesses that lack storage space rely on these self-storage facilities to store their inventory and supplies.

However, starting a self-storage business requires careful planning, feasibility studies, know-how and finances. In 2018, CBRE released a report that showed real estate taxes accounted for 28 percent of all self-storage operating expenses, with on-site and off-site management costs eating up another 38 percent of operating expenses. While it generates healthy, stable cash flow, a person who is entering the self-storage business must realize this won’t grow into a profitable business in a short period and requires proper management.

The occupancy rates of self-storage facilities range from 70 to 95 percent. A newly constructed facility or a re-positioned facility must reach occupancy stabilization to allow positive cash flow in the long run. On a positive note, self-storage facilities boast some of the best shorter-term and longer-term returns in commercial real estate.

The self-storage facility business will certainly consume time, energy and money. But the payoff is substantial in a continually growing industry. The record-high industry growth since 2018 is proof of this, especially with the increasing demand among the baby boomers and millennial's. It has also proven to be a recession-resistant sector over time. Ultimately lack of market disposable income, results in decreased self-storage revenue. Simultaneously self-storage resilience is clear, for example businesses that close down due to a recession often times move out from more expensive office space leases and into an affordable self-storage unit. When the economy is good experts claim people are buying additional belongings or “stuff” and have extra disposable income to afford the convenience of storing these items vs. tripping over them in the garage.

The bottom line is that self-storage offers many reasons to why acquiring an existing facility or starting a new facility is an attractive investment.

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