4 Ways Self Storage Is Recession Resistant | Commercial Real Estate Loans (2024)

FAQs

4 Ways Self Storage Is Recession Resistant | Commercial Real Estate Loans? ›

Some tenants are vacating their units to minimize household expenses. Clearly, while self-storage is somewhat recession-resistant, it's far from being recession-proof.

Some tenants are vacating their units to minimize household expenses. Clearly, while self-storage is somewhat recession-resistant, it's far from being recession-proof.

Examples of recession-proof assets include cash and cash-equivalent investments, such as three-month U.S. Treasury bills, while examples of recession-proof industries are consumer staples, utilities, and healthcare, among others.

Self storage facilities have relatively low overhead costs, as they do not require significant maintenance or tenant improvements like other types of property investments. This can result in high profit margins for investors, especially when compared to residential or commercial properties.

Centrally-located properties in walkable, urban areas that are surrounded by amenities tend to hold their value well over time. As noted above, student housing is another great investment to make during a recession, particularly student housing in primary markets near the nation's top colleges and universities.

However, no company or industry is 100% safe from an economic crisis or recession. Consumer staples, including toothpaste, soap, and shampoo, enjoy a steady demand for their products during recessions and other emergencies, such as pandemics.

Historically, the industries considered to be the most defensive and better placed to fare reasonably during recessions are utilities, health care, and consumer staples.

Recessions are the result of shocks to aggregate supply or aggregate demand in the economy or both. A supply shock occurs when something reduces the economy's ability to produce output at a given price level.

What is the future of the self-storage industry? ›

The outlook for the self storage industry remains positive, with forecasts to reach $72.15 billion by 2028. Despite some slowdown in the rate of growth due to increasing interest rates and other economic factors, the industry's fundamentals are strong, and demand continues to be robust.

Offering a variety of unit sizes allows owners to cater to a broader customer base, accommodating individuals and businesses with diverse storage needs. Additionally, providing specialised units such as climate-controlled storage options or vehicle storage can increase rental rates, boosting overall income.

Market supply

While the self-storage industry has seen rapid growth, especially during the pandemic, this has led to an oversupply in some areas. As of July 2023, operators cut rents by as much as 28% below 2021 levels in certain markets, signaling an imbalance between supply and demand.

Multi-family properties, such as apartment buildings, can be a good investment during a recession. They can provide a steady stream of rental income and are often more stable than single-family homes. Commercial properties, such as office buildings and retail spaces, may also be a good investment during a recession.

You may be able to purchase properties at their cheapest during a recession. However, you need to be prepared for extremely high-interest rates. If financially capable, buying a property outright without taking on loans or a mortgage may be the soundest strategy.

The outlook for the self storage industry remains positive, with forecasts to reach $72.15 billion by 2028. Despite some slowdown in the rate of growth due to increasing interest rates and other economic factors, the industry's fundamentals are strong, and demand continues to be robust.

Market supply

While the self-storage industry has seen rapid growth, especially during the pandemic, this has led to an oversupply in some areas. As of July 2023, operators cut rents by as much as 28% below 2021 levels in certain markets, signaling an imbalance between supply and demand.

Con: Potential Risk of oversupply.

Since self-storage facilities are relatively inexpensive to build and maintain, they get built quickly and easily during times of especially high demand. However, once demand tapers, there can be a resulting oversupply that puts downward pressure on rents at all facilities.