Storage Units: Who’s Using Them & Why Investors Like Them

Storage Units: Who’s Using Them & Why Investors Like Them

Storage units, also known as self-storage facilities or storage warehouses, are a subset of commercial real estate that provides rental space for individuals and businesses to store their belongings or inventory securely. These facilities offer a range of storage unit sizes, from small lockers to large warehouse-style spaces, and are commonly used for various reasons. Here’s why storage units are needed and why investors are often attracted to them:

Whose using them?

Temporary or Long-term Storage Users: Storage units cater to individuals and businesses that require extra space to store items that they don’t have room for at home or in their primary business location. These needs can be temporary (e.g., during a move or renovation) or long-term (e.g., storing seasonal inventory).

Residential Use: Many individuals use storage units for personal items such as furniture, household goods, seasonal decorations, or collectibles. This can be due to downsizing, traveling, or transitioning between homes.

Commercial Use: Businesses, particularly small businesses, often utilize storage units for inventory management, document archiving, equipment storage, and more. It’s a cost-effective way to manage excess inventory or equipment without needing larger office or warehouse space.

Inventory Management: E-commerce businesses and retailers often rely on storage units to store their inventory. These spaces provide flexibility in adjusting storage capacity based on seasonal demand.

Security and Convenience: Storage units offer security features like surveillance, climate control, and individual locks on each unit, providing a safe and convenient storage solution.

Why Investors Like Storage Units

Investors often find storage facilities attractive for several reasons, some of which are due to:

1.) Recession Resistance: Storage facilities tend to be recession-resistant. Even in economic downturns, people and businesses often require storage space. In fact, economic uncertainty can sometimes lead to increased demand for storage as people downsize or face transitional periods.

2.) Steady Cash Flow: Storage facilities typically provide a stable and consistent cash flow. Most tenants sign leases for their storage units, and many of these leases are on a month-to-month basis, allowing for regular rental income.

3.) Low Operating Costs: Operating expenses for storage facilities are often lower compared to other forms of commercial real estate. Maintenance and security costs can be more manageable, and utilities are often minimal, as units may not require heating or cooling.

4.) Minimal Tenant Improvements: Unlike office or retail spaces, storage units generally require fewer tenant improvements or build-outs. This means lower upfront costs for investors.

5.) Scalability: Investors can easily scale their self-storage investments by adding more storage units to an existing facility or acquiring additional facilities. This scalability allows for portfolio growth over time.

6.) Diverse Tenant Base: Storage facilities attract a diverse tenant base, including individuals, households, and businesses. This diversity can help mitigate risk in a real estate portfolio because the failure of a single tenant doesn’t have as large an impact as it might in other commercial properties.

7.) Asset Appreciation: Well-maintained and well-located storage facilities have the potential for appreciation in value over time. This can result in capital gains for investors who choose to sell their properties in the future.

8.) Simple Management: The management of storage facilities is often less complex compared to other types of commercial real estate, such as office buildings or shopping centers. This can be appealing to investors who prefer a more hands-off approach.

9.) Favorable Financing Options: Lenders often view storage facilities as relatively low-risk investments, which can result in favorable financing terms for investors looking to acquire or expand their holdings.

10.) Resilience to Technological Trends: E-commerce and other technological trends have increased demand for storage space to house inventory and logistics operations. As these trends continue, storage facilities can benefit from sustained or growing demand.

Overall, storage units in commercial real estate offer investors a relatively stable and potentially lucrative investment opportunity. They meet the essential needs of a wide range of tenants and have shown resilience in varying economic conditions, making them an attractive choice for those seeking to invest in commercial real estate. However, it’s essential to conduct thorough due diligence, including market analysis, property inspection, and financial assessment, to make informed investment decisions and ensure the success of the storage facility investment.