Driven by the ‘four Ds,’ the self-storage business is booming

America, home of the free and land of self-storage.
Of all the self-storage in all the world, more than 75 percent of it is in the United States. There are nearly 50,000 self-storage facilities in the United States. The rest of the world has about 15,000 combined, according to the Self Storage Association.
And this summer, St. Louis is getting at least 1 million more square feet of it, give or take.
Demand for self-storage is most often attributed to four major life events that the industry calls “the four Ds”: divorce, death, downsizing or dislocation (i.e. job loss).
“The big driver is change,” said Brad Schwer of Morningstar Equity Research. “In one way or another, people are looking for stability.”
The U.S. has an estimated 2.6 billion square feet of self-storage, according to the Self Storage Association. That’s about 8.1 square feet per person, and that’s growing.
“We’re not sure how long this trend will last. We think maybe we’re at the top of the bell curve,” said Mike Blackett, a senior vice presidents with the Alexandria, Va.-based trade group. “But the demand is there, and facilities are expanding, so you will see some price wars, competition and see who’s left standing.”
When a steady income or residence is elusive, leasing a small square of storage space for possessions can provide peace of mind, according to Beau Reinberg, co-owner of the 10-year-old W-Ave Storage facility downtown and the two-week-old Extra Space Storage at 10300 Watson Road.
When the economy took a dip, he maximized income at W-Ave Storage by leasing to Urban Harvest, a food roof-farming tenant. Part of the parking lot is a paid lot, but the other part is leased to St. Louis Volleyball, which trucked in tons of sand to host matches for 200 teams.
But he has five to six new storage facility sites in the works, and they will be strictly storage. He no longer needs to diversify, he said.
Sticky situation
The reality is that most people rent storage much longer than they expect, overvalue the sentimental items inside and rarely shop for better pricing elsewhere once their belongings have been stored.
Schwer, the analyst, calls the success of retaining self-storage customers “stickiness.” That viscous quality helped establish the sector.
“You couldn’t be in a better property sector from 2011 to 2015,” explained David Rogers, the chief executive officer of Life Storage (formerly Uncle Bob’s Self Storage) at an investor forum recorded in June. Now growth is slower, but there are still opportunities. Rogers called the market for self-storage in St. Louis “tremendous,” thanks in particular to vacant buildings already zoned for warehousing storage.
The vast majority of self-storage facilities are mom-and-pop shops, but corporate mega-businesses are fighting for a bigger share of the business. Life Storage has 700 properties nationwide and 14 facilities in the St. Louis region.
Out of the shadows
Once upon a time, self-storage consisted of sketchy properties on the outskirts of town with dubious security. Now, they’ve become integrated into communities. The buildings are nicer, year-round climate control is standard, there’s personnel on-site, security is sophisticated and payments are automated.
Until recently, Blackett said, self-storage was a well-kept real estate investment secret. The intense new attention from outsiders or newbies to the industry is a shift, he said.
“Now there’s maybe a lot of people trying to make a quick buck and throwing their hat in the ring,” Blackett said.
But the factors that make self-storage great for investors are not always appealing to communities.
Each facility typically employs only two or three people. They generate minuscule traffic, which is not great for nearby retailers or neighborhoods that want to appear lively.
“Usually not generating a lot of traffic is a good thing, but the two biggest challenges are finding available land and getting projects approved by the city in an area that you want to be in,” said Benjamin Hagedorn of Northpoint Development, which has launched a new storage company that opened its first two 300,000-square-foot facilities under the name Beyond Self Storage in the St. Louis region this summer.
“Even though, we’re quiet, we don’t pollute, and the building is nice too. Self-storage is just not the sexiest use. Some places would rather see an active Starbucks,” he said.
But self-storage can be a practical compromise and a reliable source of income for communities in need of new businesses.
“Some redevelopment costs are just too high for a typical retail business. They just can’t make it work economically, where a self-storage business can,” Hagedorn explained.
So a vacant four-story, 155,000-square-foot property at 725 North 23rd Street with two freight elevators, four loading docks and adjacent parking can easily get a new life as CubeSmart Self Storage, coming soon (the company’s first local location is in St. Charles), instead of being laboriously retrofitted to become lofts or more likely left to decay.
The property stood vacant a few years after Commercial Letter Inc., a direct mail company, consolidated its operation to an Earth City facility and the building’s price was reduced twice before reaching its final sale price of $1.2 million.
The 300,000-square-foot National Candy Building complex had been vacant for more than 20 years. Built in 1927, the building was listed on the National Register of Historic Places, but it had been vandalized and presented many challenges for developers. The seven-story building at 4230 Gravois Avenue was bought in 2015 by U-Haul’s parent company, Amerco Real Estate Co., for $1.5 million and now it’s an equipment rental site and self-storage facility.
Good business?
Schwer called it smart for investors, but when asked if it was smart for customers, he hedged.
“It’s a good business to be in,” he said. The reason it’s a good business is because there’s a low bar for entry and the industry has proven that you can raise rents on existing customers by 5 to 10 percent every eight to 10 months or so, and they will stay. Most are on auto payments, Schwer explained, and the incremental increases aren’t typically enough to spark a reaction.
“People aren’t going to move into … a new space even if it’s half the price. Nobody is going to go and take the trouble to pick up all of our stuff and move it,” Rogers of Life Storage explained to investors.
Clutter-clearing professionals and certified organizing specialists have a different perspective on “good.” It’s not surprising that they do not approve of the thriving self-storage trend.
Sue Anderson initially stopped short of calling self-storage insidious, then she thought better of it and said, “I think they should be ashamed. Wait, is there ever a good reason? Hmm, I don’t know, fire maybe. A parent’s death and you need time to cope. Maybe.”
The problem is that legitimate, unassailable reasons for stowing stuff are rare, she said.
“People are always ‘gonna do something’ with the stuff,” said Anderson of Simplified Living Solutions Inc. “I’m ‘gonna’ knit that afghan, refinish that table, do a report, make a scrapbook, you could fill in the blank. But what they are doing is avoiding reality.”
She said that people are literally buying time.
Others suggest an element of willful delusion about the precious cargo in self-storage.
“Amazon, eBay and Craigslist have made it easier to accumulate more faster … They have also nurtured thousands of forms of niche consumption (for example, collecting of a sort that used to take people half a lifetime of hunting through flea markets),” explained Heidi Aronson Kolk, a cultural historian in the American Culture Studies program at Washington University. She emailed her response from New York where she is participating in a research fellowship. “Much of what we put into storage is of uncertain value. We may not even remember how we came to have it or feel any sense of attachment to it, but eBay and ‘Antiques Roadshow’ have taught us that it will probably be worth something someday.”
She said that self-storage compounds the very American problem of “overaccumulation by directing the flow into an off-site receptacle.”
Kolk agrees that storage is an avoidance tactic that let’s people skirt pragmatic questions “about our possessions — what they mean to us, why we have them, and what to do about them.”
“You should not keep anything that you don’t need, use or love,” Anderson said. “And the reality is that if you need it, use it or love it, it’s going to be in your house.”
She said clients always thank her profusely for helping them clean out storage units.
“It’s just a storage full of delayed decisions,” Anderson said. “They are like what is all this crud and that’s after $100 to $300 (a month) of renting for years.”
“Yeah, sometimes our biggest competitor is the dumpster,” Hagedorn said as a fact, not a joke. But he isn’t anti-minimalism, nor does he bemoan the clutter specialists who disparage self-storage.
“The reality is that sometimes people do plan on temporary use of three to six months but end up renting long term,” he said. “People have different reasons, some of them are storing memories and they just want someone to take care of thing that are important to them. And if it’s important to the customer, then it’s important to us.”

read the full article >>