Going away to college. Relocating for a job. Getting a divorce. It's these and other transitional life events that typically drive the need for temporary storage space. But much of the demand is ongoing because we increasingly are a nation of pack rats.
Real estate investment trusts own and operate about 10 percent of the self-storage facilities in the country, says Michael Knott, managing director at Green Street Advisors. Although their share prices have risen sharply in recent years, he says self-storage REITs still offer a potential upside for investors.
Demand for storage space is strongest in the spring and summer, when college students are out of school and people tend to move. Customer turnover can be high, but typically more than 50 percent of self-storage tenants rent for longer than a year, Knott says.
Since the financial crisis, smaller storage companies have had a tougher time getting financing to add more locations. That favors REITs and helps keep occupancy strong and gives them more control over pricing.
"The public companies are best-of-breed in the industry and enjoy tremendous advantages," Knott says. Unlike with other types of commercial real estate, self-storage owners don't have to invest nearly as much capital in constantly maintaining or upgrading their property to remain competitive. That's a factor Knott says makes self-storage REITs a great buy-and-hold investment.Associated Press