Stable. Recession Resistant. In Demand. I nflation is at record highs. The S&P 500 has been in flux. Americans fear a looming recession. When the economy looks the way it does today, savvy investors have historically turned to commercial real estate (CRE) as a hard asset class with a lower risk profile and more stabilized returns. But the pandemic — and its subsequent economic impact — significantly altered the landscape of CRE sectors like multifamily, office, retail, hospitality and more, while also exposing existing cracks that That’s why now, more than ever, savvy investors — especially passive, accredited investors — are seeking out alternative real estate categories to position their money. Self-storage real estate is one such investment. have lessened their investment appeal.
Why is self storage appealing for investors? • It’s recession resistant. The self- storage industry has performed well in the last four recessions due to its consistent usage during significant life events — good and bad. • It’s a hedge against inflation. Unlike most classes of real estate, self storage largely utilizes short- term, 30-day leases, giving owners a much shorter time horizon to meet the market in whichever economic condition it’s in. • There’s little government regulation. Evicting a delinquent tenant is far easier in self storage than just about any other real estate asset class. Since nobody resides in self-storage units, there are also fewer building requirements. • There are consistent returns. From 2009 to 2018, self-storage facilities averaged an annual ROI of 16.9% (Source: Colliers International). This number was higher than office, industrial, retail or apartments during that time, and it’s only grown in recent years. • There’s stable occupancy. National self-storage occupancy averaged 91.5% in the first quarter of 2020, and as of the third quarter of 2021, it was averaging 96.5%, according to Yardi.
• There are tax advantages. Investing in self storage unlocks a wealth of tax advantages, including depreciation. Investors can use this non-cash deduction to reduce taxable net income while enjoying all the benefits of a property’s appreciation in market value. According to a StorageCafe survey, 38% of respondents declared themselves to be self-storage users in 2021. That number continues to expand year over year.
Business owners rely on self storage to warehouse
their inventory and service equipment.
When they move, get divorced, downsize, relocate, start a business or experience one of a dozen other life events, families and individuals turn to self storage to meet their short- or long-term needs. With factors relevant in both good and bad economic periods, it’s no wonder that, over the last 15 years, self storage has caught the eye of Wall Street. It won’t be an “alternative” investment for much longer.
• There are barriers to entry. Movements like Not in My
Backyard (NIMBY) have prompted bans on new self-storage facilities in several cities, resulting in a scarcity of supply throughout the country.
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