For an industry that emerged from nowhere with no inherent allure, no collective marketing savvy and no tangible product to take home, the rental self-storage industry has piled up impressive numbers.
Fifty thousand storage facilities now dot the American landscape, most of them austere, nearly windowless buildings wedged into commercial strips and industrial zones. This means that the industry boasts more domestic locations than McDonald’s, Subway and Jack in the Box combined.
With each storage yard containing, on average, 500 rental compartments, there are literally millions of garagelike vaults in which to store golf clubs, skis and old clothing, said R. Christian Sonne, a self-storage specialist at Cushman & Wakefield Western, an Irvine, Calif., financial services firm. The combined square footage of those units is three times the size of Manhattan, by one calculation. Every man, woman and child in the United States could stand inside those spaces all at once, industry officials like to say – and still do jumping jacks.
“It’s way bigger than people think,” Rachel Greenfield, marketing manager for a storage-related company, said of the industry, which barely existed in the 1960s and began a span of steady growth in the 1970s. A tipping point occurred near the end of the century, when the concept more than took off, she said. “It blew up.”
By then, Wall Street had discovered the sector. Infusions of cash created what one expert calls a “superfragmented” playing field in which tens of thousands of relatively minor storage operators, including more than 27,000 stand-alone “mom and pops,” compete against a handful of goliaths that control hundreds of locations apiece.
Most new construction ended during the recession, and many operators suffered, but overall, the industry held up well compared with the retail and office sectors, Sonne said. Occupancy rates and income are rising again. The industry takes in $22 billion annually, twice what Americans spent last year buying movie tickets.
Sovran Self Storage, an Amherst-based real estate investment trust that is one of the nation’s biggest operators, cashed in on that strength. Its earnings jumped by 37 percent in 2012, which pushed its stock up by 45 percent last year, and its shares are up by an additional 5 percent so far this year.
“We see ongoing strength here,” said David L. Rogers, Sovran’s CEO. “Our industry and our company are in a good place right now.”
Sovran expects its earnings this year to rise by about 11 percent, as the company continues to acquire new stores across its markets, which span the entire eastern half of the country, and take over management responsibilities for a couple dozen others. Last year, it spent $189 million to acquire 28 stores, while taking over the management of 17 other properties owned by others. In all, Sovran runs 461 self-storage facilities in 25 states under the Uncle Bob’s name. This year, it expects to spend an additional $100 million on acquisitions and bring 20 to 25 additional properties into its property management program, company officials said.
Such success makes self-storage one of the remarkable stories of American commerce. Even those in the industry are amazed, especially since the first storage yards were almost afterthoughts, an attempt to squeeze a few dollars from land next to freeways or on the outskirts of town. Or land awaiting later development into hospitals or retail centers. Self-storage “is a real estate class that isn’t sexy per se,” said Warren Allan, president of Dana Point, Calif.-based Optivest Properties, which operates 42 storage facilities in six states. “It’s flown below the radar screen.”
Storage has always battled a perception problem: that it is illogical to pay to keep something you already own, and perhaps even pay more in rent than the merchandise is worth. What no one fully appreciated was how useful temporary storage would become. “This is an event-driven business,” said Lance Watkins, CEO of Storage Outlet, a chain with 15 locations in California. Those important events often involve what he calls “the three D’s”: divorce, debt problems and death.
People move. They upsize, they downsize, they combine households. They clean out the homes and apartments of deceased loved ones. They expand a business and need a place for extra inventory. “You come home, and a water pipe broke and your house is flooded,” Watkins said. “You need a storage unit to put your stuff in.”
Despite the favorable fundamentals, many insiders believe that the industry is entering a painful period of consolidation and upheaval, much like what the airline and hospitality industries have gone through. In part, it’s because of the sheer financial might of big firms such as Glendale, Calif.-based Public Storage, the industry leader, which operates more than 2,000 facilities nationwide.
As part of a real estate investment trust, Public Storage has access to capital at rates far lower than smaller operators can obtain, industry experts say. Four of the nation’s Top 5 firms, representing 3,800 storage yards, are held by similar trusts strongly positioned to gobble up smaller competitors.
The 50,000 U.S. storage sites compare with fewer than 10,000 in the rest of the world. However, “there’s significant development,” Sonne said. “In Europe, it depends on the country. Asia, Australia, Hong Kong. Ten years ago, in Hong Kong, people had no idea what it was.” Now it’s taking root.”
News Business Reporter David Robinson contributed to this report.