How does self-storage compare to other real estate investments?
Self-storage can be compared to other real estate investments in terms of investment return, risk, and stability.
Investment return: On an individual facility level, self-storage has historically provided solid returns for investors, with returns typically ranging from 6% to 9% based on the cap rate. However, returns will vary based on location, competition, occupancy rates, and operating expenses. On a macro economics level, self storage has the highest return on investment in comparison to any other real estate asset class. From 1994-2017, storage returned an annual average of 17.43%. Based on that annual average, $100,000 invested in 1994 would be over $4,000,000 today.
Risk: On an individual facility level, the level of risk for self-storage is relatively low compared to other types of real estate investments. The demand for self-storage is generally stable and not tied to the performance of the broader economy. Additionally, self-storage tenants typically sign lease agreements, which provides a steady stream of rental income. However, as with any real estate investment, the value of the property can be impacted by economic downturns, changes in competition, or local zoning regulations. On a macro level, from 2007-2009, self-storage dropped -3.8% in comparison to the S&P’s -22.0%. This was the smallest drop of any real estate asset class. Self storage had some of its best performing years during the COVID-19 Pandemic when some other real estate asset classes performed poorly. According to Trepp, a Commercial Mortgage Backed Securities research firm, of the 1,700 CMBS loans made to self storage in the first 3 quarters of 2020 only 3 were delinquent– that is a 0.17% delinquency rate . During the same time multi-family was defaulting at a rate 1,800% higher or 18x that of self storage.
Stability: Self-storage is considered a stable real estate investment due to the consistent demand for storage space. Even during economic downturns, the demand for self-storage typically remains strong as people downsize or move to new locations. The stable demand and predictable rental income make self-storage a relatively stable investment compared to other types of real estate.
Overall, self-storage can be a solid real estate investment for those looking for a lower-risk, stable investment with solid returns. However, as with any investment, it is important to thoroughly research the market, competition, and local economic conditions before making a decision.