Why Investors Are Doubling Down on Self-Storage

Thanks to a pandemic push, the self-storage market is taking off. Self-storage properties are among a handful of asset classes to shine during the pandemic, and the activity is reinforcing investor interest. Buchanan Street Partners has tracked the market activity and launched a self-storage investment platform with plans to buy $350 million to $500 million over the next five years. The recent market activity has underscored the firm’s outlook and investment plans.

“As we expected, self-storage has continued to perform very well during the pandemic, further reinforcing our investment strategy,” Timothy Ballard, president and CEO at Buchanan Street Partners, tells GlobeSt.com. “The pandemic reaffirmed the belief of self-storage being a recession resistant sector.”

The demand is driven by heightened consumer interest in storage facilities, which have led to strong occupancies. “With consumer demand at an all-time high, the sector appears to have proven that it is a need among consumers,” says Feerooz Yacoobi, VP at Buchanan Street Partners. “That’s why in terms of occupancies, we’re seeing same store pools among the REIT operators at an all-time high, in the mid-95% range. We think this sector will continue to weather the storm.”

In light of the current market, the firm is focusing on stability, however, in its acquisition strategy. “We like cash-flowing stable deals, especially in today’s economic environment. Everyone is searching for yield so they are attractive. One of the areas that we expect to see significant opportunity is in newly developed, class-A facilities that have not yet reached stabilization,” says Ballard.

While the demand supports the investment thesis, there is also opportunity to place capital in this market. “Many of these self-storage facilities are coming available as developers, merchant builders or shorter-term capital are looking to sell early and realize gains, or they’re struggling with short-term oversupply that is causing them to miss pro forma projections,” says Yacoobi.

These problems are actually not due to slowing demand during the pandemic but rather overbuilding issues in the last two years. “We’ve seen overbuilding as a lot of new product was delivered in 2018 and 2019. That has negatively impacted market rates, but rents are now starting to pick back up in certain trade areas,” says Yacoobi. “As noted, we think those are interesting opportunities to come in and acquire class A newly built product.  Our patient capital doesn’t need immediate cash flow, which enables us to invest in institutional-quality assets in strong locations.”