Economics & Demographics • Section 3 Trusts
The National Association of Real Estate Investment (NAREIT)
reported that the self-storage sector
recorded a 3.72 percent total return in the first half of 2015, second only to the manufactured homes segment of the residential sector. This compares to a 1.23 percent total return the S&P 500 delivered for the first six months of the year.
The long, steady performance of storage has had a Chart 3.3 – Customer Household Income
dramatic effect on the REITs’ stock prices. Extra Space and CubeSmart led the class with stock prices that rock- eted over 33 percent between mid-2014 and mid-2015. Extra Space’s stock price rose approximately 42 percent between July 2014 and July 2015; additionally, the REIT’s stock price increased nearly 75 percent over a two-year period. Besides benefiting shareholders, the increasing stock prices allow the REITs access to new sources of capital at a favorable cost.
The remarkable returns of self-storage have attracted the at-
tention of new investors. There are many more institutional inves- tors that are looking for investment opportunities in the sector. These include real estate asset managers, pension funds, private equity groups, and hedge funds. This new money is being direct- ed toward acquisitions, joint ventures, new development, conver- sions, and other forms of real estate ownership.
Cash flow growth and a lack of a high capital expenditure burden in self-storage are two of the factors that have made the sector appealing to investors. Self-storage has the advantage over other real estate types of lower expenditures when turning over rental space. When tenants vacate apartments and office build- ings, landlords have to spend considerable funds to clean, repair, and paint rental areas. With storage, vacant units may only require a broom to get them ready for the next customers.
Understanding Market Demographics To be successful in the business of self-storage, it is essential to have a clear understanding of the market demographics surrounding a facility. Understanding this data will help deter- mine where to target marketing efforts, how to market to those potential customers, and what types of offers or incentives to consider. See Table 3.4 on opposite page. One very important demographic factor to evaluate is the average household income of self-storage customers in a specific market as seen in Chart 3.3.
In a survey of self-storage renters conducted by the national
Self Storage Association (SSA), 15 percent reported annual house- hold incomes of $125,000 or more. While 9 percent reported av- erage household incomes between $100,000 and $124,999, 11 percent fell in the $75,000 to $99,999 range. Slightly more than one-fourth of the respondents fell into the median range be- tween $40,000 and $74,999, with 12 percent each in the $20,000 to $29,999, and the $30,000 to $39,999 income ranges.
2%
Single Family House Other
Apartment or Condo
Source: 2013 SSA Self Storage Demand Study
76% 2016 Self-Storage Almanac 41 59% 11% 5% 68%
Less than $20,000 $20,000 to < $30,000 $30,000 to < $40,000 $40,000 to < $50,000 $50,000 to < $60,000 $60,000 to < $75,000 $75,000 to < $100,000 $100,000 to < $125,000 $125,000 or More
0 4 Percentage of Renters 8 12 16
Source: SSA 2013 Self Storage Demand Study
Chart 3.4 – Residence of Renters 27%
Single Family House Other
Apartment or Condo
Source: 2013 SSA Self Storage Demand Study
Chart 3.5 – Residence of Student Renters 30%
Single Family House Other
Apartment or Condo
Source: 2013 SSA Self Storage Demand Study
Chart 3.6 – Residence of Military Renters 22%
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