Back Market is Ripe for Continued Growth Given Pandemic Driven Migration
Migration, driven by both lifestyle changes and the pandemic, has created waves of disruption that have rippled across all areas of real estate. While disruption can bring chaos, it can also create opportunity. Based on a multitude of signs in the market, such as supply chain delays, the ecommerce boom, and mass migration, one disrupted area benefiting is the self-storage segment of real estate.
Migration to the Sun Belt is a trend that’s been accelerated more recently. According to the Institutional Real Estate Inc. (IREI) 2021 Outlook Report, the area captured a staggering 75% of the U.S. population growth between 2009 and 2019, and this statistic doesn’t even account for the pandemic driven shifts that occurred over the last two years. Changing demographics, combined with the COVID-19 pandemic, led to jammed shipping ports, skyrocketing lumber prices, delayed delivery dates, and increased demand for storage in the Southeast as people and companies relocated and brought their belongings with them.
Storage Helps Solve the Affordability Crisis
Large increases in home prices across the country, driven by an under supply of single-family homes coupled with interest rates at near historic lows, meant that many people (especially those that were Florida bound to homes without basements) had to downsize to afford their new residence. Housing affordability is a critical issue in the United States today and one that can be mitigated through self-storage. Today, roughly one in 10 households utilize a storage unit. Facing rising home prices and rental rates, millennials, often strapped with consumer and student loan debt, are somewhat forced to make do with smaller spaces. Self-storage is one way to help alleviate some of the pressure. “In” migration states are going to see a higher demand for storage than “out” migration states. According to the Census Bureau, since 2010, the populations of large sunbelt cities increased by an average of 11.8%, translating into increased demand for storage in this region.
A Stalwart in Time of Recession
Self-Storage is largely recession-proof and has consistently performed well in times of disruption. According to a report by Multi-Housing News, on a year-over-year basis, self-storage rents increased 10.4% or an additional $127 a year for average 10×10 non-climate-controlled units, while climate-controlled units of similar size recorded a 12.4% uptick, or an additional $145 a year. National rates also experienced strong growth on a month-over-month basis, increasing 0.80% for 10×10 non-climate-controlled units and 1.4% for climate-controlled units of similar size.
Miami continued to lead the top markets in annual rate performance with 10×10 non-climate-controlled rates increasing by 24% and climate-controlled rates by 21.2%. According to the same report, Charleston came in second, with sustained double digit growth year-over-year.
Expanding Customer Base: Baby Boomers and Millennials Bode Well for Storage
Given Americans’ zeal for consumerism, we continue to seek space, and we are filling it up quickly. Currently, 9.4% of U.S. households rent a storage unit, and many think that number is poised to grow due to two of the largest cohorts in the population – the Baby Boomers and the Millennials.
The Baby Boomers are moving into their retirement years. As Boomers downsize and move to warmer climates, many items will need to be stored. A lifetime of accumulated possessions can be difficult to part with and even with diligent pruning, is often difficult to condense into a two-bedroom home or apartment.
Another driving force behind self-storage is the Millennial population that are coming of age, buying homes, starting families, and contributing to the demographic migration to the southeast and suburbs. During the pandemic, virtual work arrangements allowed many Millennials to move south for lifestyle and tax benefits. The Millennials and Baby Boomers represent a huge opportunity as they are moving and looking for ways to live affordably yet comfortably. Self-storage is providing the missing puzzle piece.
Storage Thrives on Disruption
For investors who are looking for ways to balance portfolio risk and hedge volatility, storage is an interesting option. It thrives on movement and disruption; it is a stalwart through recessions; it helps solve the affordability crisis in the U.S.; and it will benefit from the demographic preferences of Millennials and Baby Boomers. Given the aging population, the outsized population growth in the sunbelt, and multiple points of disruption, we feel the opportunity is ripe for self-storage.
