Market Consolidation and Future Outlook

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The new place was smaller, so small that she didn't have room for all of her stuff, and she didn't want to get rid of it. So she decided to rent a storage unit. Mainly things I stored were books, kitchenware. I have a lot of clothes and gear, you could say. So winter clothes, or summer clothes, or snowboards. As people in my family started moving out of their homes, I started inheriting a lot of, you know, knick-nacks, heirlooms, which I just didn't have room for. Kolog i isn't alone in her quest for more sp ace. It's estimated that one in five Americans rents a storage unit. High housing costs, urbanization, and rampant consumerism have made self-storage into an estimated forty-five billion dollar industry in the US alone . And real estate investors are clamoring for a piece of the action. Self-storage has become sexy because people have recognized what a strong fundamental business it is. Americans love their stuff and they don't want to get rid of it for the Freakonomics Radio Network, this is the Economics of Everyday Things. I'm Zachary Crockett. Today, storage units . The modern self-storage industry traces its roots back to the 1960s. The earliest facilities were more about investing in land than building a viable business That's the population would move there, and in the meantime, they put a self-storage facility on it so that they could generate cash. For these early entrepreneurs, storage units were what's called a covered land play. You buy some cheap land not too far from a growing population center and wait until there's enough people nearby to build a hotel or a shopping mall. In the meantime, you need to cover taxes. So you set up a business that's cheap to operate and brings in a little cash , like a storage facility. But a funny thing happened. Investors realized that self storage is among the highest and best uses, so instead of selling those, they kept them . Today, there are around 52,000 storage facilities in the United States. More than 20 million individual units. About two-thirds of those facilities are owned by small to mid-size operators. The rest of the market is controlled by a handful of large national corporations, like public storage, U-Haul, CubeSmart, and Extra Space Stor My name is Zach Dickens, and I am the Chief Investment Officer with Extra Space Storage. During his time there, he's watched the company grow into one of the largest self-storage operators in the world. We're around two hundred and eighty-three million leasable square feet today and two point six million units that we operate, so Those units vary in size. On the lower end, some are just twenty five square feet. Those are generally good for someone like a college student. Hold the twin mattress, a dresser, and maybe a few boxes. On the bigger end, you've got units that are around the size of a two-car garage, and it goes up from there. The monthly rental on a unit varies based on size, location, and how fancy it is . Some are climate controlled, others get hot in the summer and cold in the winter. The average unit price today is somewhere around $180 a month per unit. And that's probably on a unit that's a little bit bigger than a ten by ten unit or a hundred square feet out there today. For the facility owner, most of that rent is profit. Operators have to pay for things like property tax, insurance , and utilities. And many facilities have a manager on site during business hours. But as far as real estate goes, storage is a pretty low maintenance business. If you looked at residential, when somebody vacates a property or an apartment, you have to go through a process of doing a lot of tenant improvements. Whereas on the storage side of it, you simply roll up the door, they take their belongings, and we sweep out the unit and it's ready to rent for the next person. And tenants are easy to replace when they vacate. If you are in a retail space and you have an anchor tenant go out of business like a bed bath and beyond or some of those that have had issues, it changes your economics dramatically. Whereas if you lose one or two storage customers, it's a small loss to the property and we can quickly replenish that with another customer. Most self-storage units are offered on month-to-month leases. Dickens says that most people think they'll only have to use a unit for a couple months, but they'll actually end up staying much longer. They typically stick around somewhere between 14 to 16 months on average, depending on the storage facility. A move into a storage unit often revolves around some kind of major life event. It could be a college student graduating, a military officer being deployed , or a family moving to a new home. People need storage when they're in transition. When life events happen like having babies, or maybe their parents are growing elderly and they need to move in with you . When divorce happens, often there's a period of uncertainty and transition. When people move, they need storage. They're going to sell their home. They have to get the clutter out, so they rent storage. But another large chunk of the customer base is people who simply don't have room to store all of their stuff. We find a lot of use between people that are renting because they don't have a lot of space within their apartments and you know we're like an extension of their apartments where they can store their holiday belongings and their decorations and all that. This is especially true of millennials who now make up the largest share of storage renters in America. Baby boomers, they tend to store memories. They store grandma's living room furniture or china. They don't visit that stored property very often. But millennials and Gen Z, they tend to use self-storage as an extension of their home. They leave in the morning, they get their kayak, they go kayaking, they come back late in the day and they put it back in the storage unit because they don't have any place else to store it. They can't store it on the balcony of their apartment. With the rising cost of housing, many renters are downsizing. Across the nation, the size of new apartments and urban centers is also decreasing, partly because developers are building more studios . At the same time, Americans are buying more stuff than ever before. It's the American love affair with their stuff that creates the demand for self-storage. We are a wealthy country with a lot of things and we want to keep them and we want to store them. So what exactly are all of these things that people are storing in Your business deserves a strong commitment. At Provident Bank, we've got exclusive small business month offers to help your business thrive, whether you're just getting started or looking to expand. Because when your business wins, our whole community wins. But hurry, these offers won't last forever. Find the right fit for your goals at Provident.bank. Equal Housing Lender, member FDIC . I checked Allstate first and saved hundreds on my car insurance. Really smart. Unfortunately, I didn't check if I left the pizza box on top of my car before driving home. Not smart. Oh, and a semi just turned my deep dish into a thin crust. Yeah, checking first is smart. So check all state first for a quote that could save you hundreds . Potential savings vary. Subject to terms, conditions, and availability. Allstate North American Insurance Company and affiliates Northwick, Illinois. It's hard not to add a side of hot, crispy, hash brown s to your favorite McDonald's breakfast. It's even harder not to eat said hash browns before you get home. Ba-da-ba-ba-ba During his time at Extra Space Storage, Zach Dickens has seen people use storage units for all kinds of things. You see a lot of furniture, right? You see a lot of couches, that sort of thing. We have musicians that have to store their equipment in a temperature regulated environment. People with vehicles that want to preserve those vehicles. People with heirlooms that don't want to store them at home , small businesses that want to store excess product. Pharmaceutical reps use us because they're not allowed to store their medicines on their own property at home, and so they'll use us as a secure alternative there. Ten ants are almost always required to get insurance on their unit, and they're generally prohibited from using it to store more than five thousand dollars worth of stuff. What you put in there though is entirely your business. That is, until you stop paying for it. In that case, your stuff goes to the highest bidder. In most states, when a customer is late on rent, storage operators are required to send out multiple notices over the course of 30 or 60 days. When the notices go unanswered, the unit's contents are seized and auctioned off. Reality TV shows like Storage Wars and Auction Hunters often make it seem like storage units full of hidden treasures are abandoned on a regular basis. Anne-Marie de Coster, the storage industry consultant says the truth is a little less glamorous. It is very, very rare that a foreclosure sale, an auction, generates enough money even to cover the rent due. They generate small sums of money because for the most part, people store memories. You know, your children's schoolwork and your grandmother's dresser and clothing, furniture, household goods, and those are not things that sell high in a public auction where the consumer is determining the value of it. That's not to say there isn't the occasional crazy find. In 1989, a contractor in Long Island paid a hundred dollars for a unit and found a futuristic car used in the James Bond film The Spy Who Loved Me. He later sold it at auction for just under a million doll Gone out of business. So the owner operator contacted mortuaries. And then, you know, five or ten of them bid. That doesn't mean the storage facility operator got a windfall. Any proceeds from an auction that are in excess of the rent owed are returned to the renter. And many times the renter can't be found. They moved, they died, they are in jail , typically if money's not claimed, it reverts to the state or the county. Other items don't have any monetary value, but still require legwork from the storage operator. Like an urn full of cremated human remains. Those are the cremes of a loved one who maybe died forty or fifty years ago and they were very well cared for for ten years, twenty years, thirty years, and then there's this dilemma, you know, what do you do with them? And many, many operators will call one church and cemetery after another to find a place where they can bring the creme . The relative secrecy of storage units sometimes leads to more morbid fines. A unit in Colorado contained a pile of police evidence, including a bloody rope and an axe. The bodies of a woman and her two sons, who had been missing for twelve years, were found in a Seattle unit. There have been units that contained meth labs, boxes full of stolen passports, and illegal firearms. But stories like this are pretty rare. Industry experts say that only around one to three percent of storage units are auctioned off in any given year. And every state has laws that require plenty of notice before an operator can sell someone's stuff. No one goes into self-storage to sell renters' belongings. They go into self-storage to rent space. And when a renter is not paying rent, what they really want is to be able to rent it to someone who will . And there's usually a new tenant waiting in the wings. Because storage is a business that bucks economic trends. When things are good and people are buying more things, self-storage does very well. But when things are not as good and people are hurting, storage does well under those circumstances too, because that's when people have to combine households or they have to move into smaller living quarters. So one of the great dynamics of the industry for an investor or an owner operator is that regardless of the business cycle, self-storage tends to do well. In recent years, storage units have followed the path of nursing homes, mobile home parks, and car washes. Institutional investors have been consolidating the industry in a bid to gain market share. In 2023 , operators built 49 million square feet of new storage space, nearly 16% more than they built the year before. In some high-growth cities, storage units have been popping up so fast that legislators have enacted moratori