While there’s certainly nothing flashy about self-storage, this business model has proved reliable and expansive both before and throughout the pandemic, according to industry participants.“People call it recession proof, but it’s more recession resistant,” noted broker Trevor Roberts, a self-storage specialist at brokerage CBRE Group. “It performed so well during Great Recession.”Earlier this month, industry giant Public Storage announced that it will acquire ezStorage, a chain of self-storage properties out of the Washington, D.C. region, for $1.8 billion.When the dust settles on the transaction, the Glendale owner and operator of self-storage assets will gain a portfolio of 48 properties with 4.2 million net rentable square feet in Virginia, Maryland and Washington, D.C. plus an additional property currently under construction. Public Storage is already the industry’s leading player with 2,887 locations and nearly 216 million square feet of net rentable space, according to its 2020 annual report. In California, the company has 432 locations, including many in the Valley, plus another 47 under construction in anticipation of increasing demand.
Chris Jackson, co-chief executive at brokerage NAI Capital in Encino, deals in self-storage-related acquisitions and lists Public Storage on his client roster. He characterized the EZ acquisition as not unusual.
“They’ve been aggressively going after sites, doing developments, purchasing. Not just them, but all from large to small operators,” Jackson told the Business Journal.Despite its huge size, Public Storage estimates it only owns about 7 percent of all self-storage units in the country. “Collectively the five largest self-storage owners in the U.S. own approximately 16 percent, with the remaining 84 percent owned by regional and local operators,” the annual report states.In the Valley region, Roberts estimates there are some 130 existing self-storage facilities just in the east and central San Fernando Valley, with 10 or 12 in the development pipeline. That shakes out to 4.7 square feet per person in the Valley market, while the national average is closer to 8 to 9 square feet per person.“The operations have definitely improved,” he said. “The industry really has been on the upward (trajectory).”In general, Roberts said, “It’s been a very good time to be in storage. At the beginning of COVID, there was a lot of concern … nobody knew what to expect. Around June, it returned to business as normal. We’ve seen price increases.”As an example, he points to a storage facility in Reseda that has been on the market for 30 days.“There was an incredible amount of activity,” Roberts said, with just under 30 offers on the property at 6836 Canby Ave.
He added that prospective buyers ranged from those wanting to take over the business to those interested in razing the structure and redeveloping the land. As the deal is still in progress, he could not provide additional details.Bigger footprint, pricesAccording to Statista, the amount of self-storage space built each year in the United States has more than tripled since 2015 to reach some 69 million square feet in 2019. The sector now includes 1.9 billion square feet of rentable space. Average asking rent per square foot of storage space has increased from $1.14 in 2019 to $1.18 in 2020. The average vacancy is 8.3 percent.Last June, Calabasas-based Marcus & Millichap Inc. released a study of the self-storage industry in the Los Angeles market. According to the brokerage’s findings, the self-storage sector has become increasingly secure in greater Los Angeles, with construction of such facilities making a notable jump in 2019 to 1 million square feet completed. This total, the survey explained, is comparable to all previous five years combined.
The report anticipated a continued rise in self-storage usage due to a combination of events: the population of Los Angeles estimated to expand in 2020 by 19,000 people; increasing home sales and apartment rentals, which incurs a need for storage; and a statewide housing shortage, which leads more people to put stuff in self-storage.The study, based on pre-coronavirus outbreak 2019 data, expected the average self-storage rent to uptick by 2.3 percent.Charles Byerly, chief executive of US Storage Centers, an Irvine-based self-storage company with sites in 16 states, said his company thrived straight through the pandemic year. US Storage has Valley-area sites in Chatsworth, Mission Hills, Simi Valley and Montrose. Last year, according to Byerly, the peak move-in season numbers that usually run from April through August kept going all year long, save the December holiday season.“We saw activity steady throughout fall and winter,” Byerly said, and post-holidays, first quarter was off to a solid start, “busier than usual.”As an industry, Byerly described self-storage as “fairly steady,” not prone to epic peaks or valleys but a solid gradual upward arc.As for business usage of self-storage, many small companies and employees downsized during the pandemic, because of economic hardships or the shift to remote work, may have contributed business. However, Byerly was quick to note that this was his personal supposition and not based on data.“We don’t track that (renter information) specifically,” he said. “We were fortunate that we were deemed an essential business.” During the pandemic, US Storage Centers accommodated over-the-phone rentals coordinated with glass partitions and regular deep cleaning at site offices. The company already had an online rental system.In accordance to state guidance, the company tried to meet customers halfway to retain business and make its clientele comfortable. During the pandemic, the business developed payment plants to help renters pay rent, even partial rents, to get through the year.“It was dependent on the customer,” Byerly said regarding the type of partial rent payments for a unit.Investment fundsDrew Dolan heads DXD Capital, an Albuquerque, New Mexico-based capital venture firm that invests in self-storage facilities.
Dolan said that previous to founding DXD last year, he spent 15 years in private equity where he had about seven funds going in New Mexico and Arizona and invested in various sectors, including ground-up storage. It proved so lucrative that DXD has devoted much of its capital to the sector, investing in about six ground-ups in the pipeline through a $50 million fund, he said.“We do spend a lot of time (researching) on the submarket level,” he said. “For self-storage, it’s really a 3-mile radius. … There’s kind of a fundamental demographics story behind it. It’s not unlike senior living.”The coronavirus crisis notwithstanding, self-storage rentals are driven by a lot of evergreen life-cycle events, Dolan noted — People moving for a job; people remodeling their homes; divorces; elderly folks moving into senior living, etc.“There’s not a whole lot of disruptors in the industry,” Dolan said, adding that with the pandemic, a “tailwind” was created by COVID-19’s impact on everything from businesses downsizing to employees working remotely or moving because of the shift to remote work.There’s another coronavirus-exacerbated contributing factor as well: e-commerce.“The Amazon one-click button has been fantastic for storage,” Dolan said. With online consumption skyrocketing last year, Dolan said, people are going to need a place to keep their acquisitions.Dolan wouldn’t go into detail about the investments or specifics about which markets his fund will target, but he did allow that there are two ground-ups rising in Las Vegas, one of which breaks ground in a month.“We’re agnostic when it comes to (the cities chosen),” he said. “(Interest lies in) where there’s an increase in demand and less supply.”The key element necessary, Dolan said, are sites with longevity.“We want to hold onto it for seven years,” he said.While his fund has not yet invested in the Golden State, Dolan said, “California from a storage perspective is undersupplied, it’s a great market. We’ve looked at over 30,000 deals. A lot of them are in Southern California.”At NAI Capital, Jackson’s role is to help storage companies or investors acquire additional properties.
“We work with them finding sites to utilize and turn into self-storage or find sites they can build self-storage on,” he said.
In September 2019, he was involved in a deal that saw Public Storage buy a 136,706-square-foot facility in Westlake Village for $28.2 million. The site, located at 2451 Townsgate Road, sits on 9.6 acres.Growing playersThe 2019 Westlake Village buy was not an isolated move in recent months. In addition to the recent ezStorage purchase, Public Storage closed the first phase of its acquisition of the Beyond Self Storage portfolio for $528 million last December.“We are pleased to welcome the Beyond Self Storage customers to Public Storage’s industry-leading brand and platform,” said Chief Executive Joseph Russell in a statement at the time. “The addition of these high-quality assets enhances our strong and diversified portfolio, and we are committed to further building on our industry leadership through organic and external growth.”Since early last year, Public Storage has expanded its holdings by approximately 13.9 million net rentable square feet. However, the Statista report states that Public Storage’s “debt has skyrocketed from $391 million in 2016 to over $2.5 billion in 2020.”And other companies are also in growth mode. Last summer, Redondo Beach-headquartered SecureSpace Self Storage opened a new self-storage facility in Camarillo.The property, developed by InSite Property Group and located at 5300 Adolfo Road, has 75,000 square feet of climate-controlled, ground-level self-storage units. The second floor consists of 75,000 square feet of office space available for lease. Unit sizes range from 5 feet square to 15 by 25 feet.“As a Southern California-based developer, we know and love the Camarillo area – there are 300 days of sunshine a year and it’s a thriving city close to everything with friendly residents, so we built this location to provide a unique storage option for this market,” InSite Partner Paul Brown said in a statement last June. “Less than 15 percent of the supply in Camarillo currently offers climate-controlled storage.”As the economy strengthens post-pandemic, self-storage business participants see the sector continuing to yield solid results.“I don’t see demand and interest in these properties decreasing,” NAI Capital’s Jackson said. “There may be some operational (shift) going back to work, but I don’t think it’s going to negatively impact the industry. The industry has gone through so many different cycles, it has shown that kind of resilience.”CBRE’s Roberts agreed, predicting strong performance ahead.“Literally within the last couple months, we’ve seen an increase in activity, offers, pricing,” he said. “I’m no Nostradamus but we’ve kind of seen how it’s performed (during bad times) and it will continue to perform very well.”
Self-Storage’s Steady Rise
