There are certain segments of the market it pays for real estate investors to look at today. Industrial REITs (real estate investment trusts), for example, are booming right now as a surge in digital sales has fueled a need for more warehousing and fulfillment center space.
Similarly, the self-storage business is really taking off. In fact, so many investors are eager to get a piece of the action that they're duking it out over today's available opportunities.
Rearden Capital Corp., a New York-based investment firm, recently received multiple offers for two self-storage properties in the Dallas-Fort Worth metro area. And these types of bidding wars are growing increasingly common as the demand for self-storage increases.
A growing revenue stream
Before the coronavirus pandemic began, the self-storage industry was buckling under the strain of too much inventory. Construction boomed, and self-storage owners had to slash rents to compete for customers in the face of too much competition.
By the summer of 2020, rates for 10-by-10-foot, non-climate-controlled storage units were down by 4% nationally compared to the summer of 2019. And rents on climate-controlled units were down by almost 7%, according to data from Skyview Advisors.
But now, a year later, self-storage rents have soared. Rates for those same 10-by-10-foot, non-climate-controlled storage units were up 11% in May 2021 compared to a year prior. And rents on climate-controlled units were up 13%.
And it's not just that rents have risen -- they have the potential to keep going. In fact, rents on
10-by-10-foot units are projected to rise to $1.22 per square foot by the end of the year, well above the levels recorded in both 2020 and 2019, as per a recent outlook report from Marcus & Millichap.
Why sales volume for self-storage is up
Between January and June 2021, the average monthly volume of self-storage sales soared to more than $235 million, representing an increase of 54.4% from 2020, according to Marshall & Stevens. And a big reason could boil down to certain trends fueled by the pandemic itself.
A lot of people are now making plans to do their jobs remotely for the long haul. That could, in turn, be prompting people to invest in home office setups and clear out personal belongings to make room for larger desks and equipment.
Also, a lot of people have relocated to new cities during the pandemic, albeit on a temporary basis, to ride out the crisis and take advantage of temporary remote work situations. Those people were likely to have needed a place to store their belongings as they figured out their post-pandemic plans.
The Millionacres bottom line
But even beyond the pandemic, we're apt to see a lot of activity on the moving and relocation front, as well as different shifts between remote, hybrid, and in-person workplace setups. And so it's easy to see why the self-storage industry will remain hot for many years to come. It's also easy to see why investors are willing to duke it out over existing properties -- even if it means paying a premium in the process.