Is Self-Storage the New Oil Boom? Private Equity Helps the Industry Grow

by | Jul 5, 2016 | Business Feature

Private Equity Helps the Self-Storage Industry Shine

In 2016, investors are getting out of the oil business and choosing to put their money elsewhere. One of the most profitable investments they’ve found has actually been self-storage, which is a surprising revelation. This sector continues to provide high long-term returns, more than any other commercial property type.

The Self-Storage Industry Hits $1 Billion

In February, the government released a report showing that total mini storage construction was valued at $1 billion in 2015, which is almost twice what it was worth in 2014, when it was at $584 million. This is the highest the industry has been since 2008, before the recession hit the housing market hard.

Furthermore, it’s the fastest growing segment of commercial construction in the United States and the fourth highest across private construction categories. It even had some hefty competition, since transportation equipment grew by 139 percent, sports facilities by 109 percent, and chemical manufacturing by 81.2 percent, according to the U.S. Census Bureau.

Players in the self-storage industry have seen an incredible increase in equity. For example, U.S. Storage Centers has been able to expand their storage centers all over the United States. They have done particularly well in California, Texas, Florida, and Arizona.

U.S. Storage Centers, and a variety of other major self-storage players, say they’re expecting the industry to continue to grow in 2016, perhaps even doubling what it is now.

The demand has apparently been very strong in the Pacific Northwest, according to self-storage parts supplier Mako Steel of Carlsbad, California. Their president, Caesar Wright, says, “Business has been tremendous…Even our state of California has rebounded. It’s been quite busy.”

Wright estimates that his business grew 50 to 60 percent during 2015, thanks to an improved economy. With more banks willing to lend and businesses ready to build, there’s been a large demand for supplies, and every area of the construction industry has benefited.

Private Equity Pours into the Industry

Because private investors have poured so much money into the industry, it’s clear that self-storage is set up for success. These investors know how to watch the market. They knew when it was time to withdraw their money from the oil trade, and move it to something a little more profitable and reliable.

Those who have set their sights on self-storage construction are no different. They’ve seen the incredible returns, and they’re focusing on the business. As far as real estate investments go, self-storage is much easier to maintain than other investments, like rental properties or flipped properties. Self-storage yields high returns with very little work involved.

In addition, customers are hungry for more storage opportunities. There’s barely enough supply to meet the demands of customers all over the nation, and prices are rising as a result. Self-storage owners can continue to see revenue from their investments by slowly raising prices and charging for storage insurance. Privately-owned storage shops are expanding into larger storage facilities and major storage giants are emerging.

“Mom-and-pop ownership of self-storage is declining because of the demand by private investment,” says Michael Mele, director of another self-storage group based in California. “There’s also a continued consolidation of the industry, with a lot more private firms going after large portfolios with the help of the REITs, or using the REITs as third-party managers. You’re going to start seeing, in major and secondary markets, the same people owning many of the properties.”

Overall, self-storage has taken some amazing steps in the last year. The market is rebounding in the direction of real-estate, and investors are on board. Now is the time to jump on board for optimum returns.


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