When a recession comes, people downsize homes and offices - then they need room to store the extra stuff that no longer fits.
Self storage businesses provide that space, and even if the recession hurts their profits, there’s still plenty of demand!
Right?
Self storage has become a popular avenue for investors precisely because, among other things, the industry weathered the Great Recession so well.
Where other industries were crippled by the economic downturn, self storage as a whole did relatively well. With economic storm clouds on the horizon, people are starting to wonder if the same will hold true for another recession.
In short, is self storage recession-proof? Or will operators get burned?
If we are headed towards a recession (which some people are certain of, and others are certain won’t happen), it makes sense to look at the last recession the industry faced.
During the Great Recession, the self storage industry did relatively well.
Per ISS: REITs were the only real estate asset that produced positive returns during the Great Recession!
Here are a few reasons to think self storage is uniquely resistant to recessions:
Per ISS: Self Storage usually operates with expenses equalling 33% of revenue. Gross margins can be as much as 60-65%!
Of course, not all of these benefits will apply to your business. Maybe you’ve just invested in a premium self storage facility in an expensive market and are leveraged up to your eyeballs, with huge expenses and you need demand to continue to grow to keep up.
If that’s your situation, no number of bullet points is going to reassure you.
Owning a business is stressful, and owning a business during an economic downturn could be downright terrifying.
While the self storage industry did do relatively well in the Great Recession, that doesn’t protect tomorrow’s businesses from inflation, degrading demand, and increasing competition.
In fact, the major reason to worry about any upcoming recession is that last bit - increasing competition.
After the Great Recession, self storage was a star. Since then, self storage has maintained growth, even through the pandemic and the Great Resignation.
The durability of self storage has drawn a lot of attention and a lot of investment dollars. That means the competition in busy markets has increased - a lot.
Per REjournals: The Self Storage Industry is expected to register a compound annual growth rate of 5.45% from 2021 to 2026.
The industry is doing great. Smart businessfolks are investing in self storage, and the demand for storage is strong and growing. However, that means if demand slumps for some reason - say, a recession - there are more people clamoring for a piece of the storage pie.
And if your business is on the lower edge of the competition, you could get pushed out.
We’ll go into why this next potential recession would be different from the prior (it’s fueled by inflation, not a housing bubble, for one thing) in a different article. For now, let’s talk about what you can do to ensure your business isn’t the one that loses out.
At the end of 2022, we hosted a Year in Review GabFocus session where we asked questions of some leading names in the industry.
Specifically, we asked them what they are preparing to do in the face of a potential recession.
We still don’t know if we’ll face a recession at all. And we don’t know if any potential recession will hit self storage hard, soft, or will miss us completely!
But human nature wants to be prepared. So, we’re putting together a series of blog posts that will help you think through what steps to take and which ones to avoid.
Learn more ways to improve your self storage facility with these:
At StoragePug, we build self storage websites that make it easy for new customers to find you and easy for them to rent from you.
