Over the last decade, the self-storage industry went through a construction boom, with record-breaking construction activity year after year until peaking in 2019. During that time, it made a name for itself as one of the top-performing commercial sectors in the industry today.
2021 was a great year for self-storage, and it appears 2022 will be another strong year for investors. While there may be some setbacks in 2023 and beyond to consider, here’s a closer look at why self-storage is a smart buy for long-term growth investors.
Self-storage has been the top-performing CRE sector for over 26 years
Ease of trading and the access real estate investment trusts (REITs) give investors to high-quality, institutional-grade assets make REITs one of the most popular ways for investors to diversify into real estate. Within the REIT industry, the self-storage sector has produced an annualized return of 16.54% since 1994, the highest return on average of all REIT sectors during that period and an over 6% higher return than the S&P 500. And that performance includes several notable downturns, including the dot-com bubble, the Great Recession, and most recently, the global pandemic.
Storage is having a “moment”
Outperforming all other commercial real estate (CRE) sectors for over two decades is impressive by any measure, but year to date, self-storage’s 2021 performance has blown all other years out of the water. Self-storage REIT returns, as tracked by Nareit, have produced an impressive 57.63% return, once again outpacing all other REIT sectors.
Of the five major publicly traded self-storage REITs in the market today, all achieved stellar growth in 2021. Year to date, revenues for all national self-storage REITs jumped 15.8%, net operating income (NOI) grew 22.9%, and expenses decreased 2.3%. However, several REITs had noteworthy achievements.
Extra Space Storage performed the best, with revenues increasing 18.4% and NOI growing 27.8%. Business from new customers was 43% higher than Q3 2020 and 41% higher than Q3 2019.
Public Storage, the largest self-storage operator and one of the largest REITs by market cap, went on a buying spree, completing an acquisition of the $1.5 billion All Storage portfolio. Public Storage alone closed $5.1 billion of deals in 2021 so far, which is helping 2021 shape up to likely be a record year for transaction volume, at an estimated $18 billion.
Finally, Cubesmart is also having a good year. It’s seeing asking rates up 29% over 2020 and 55% over 2019.
Why storage is still a smart buy in 2022
There’s no denying 2021 was an impressive year for this industry, but it’s important investors don’t jump into self-storage expecting performance to keep pace with this year. Self-storage, which is known for its somewhat recession-proof business model, isn’t immune to negative economic impacts.
After years of development in 2019, many markets became oversaturated with storage space, which led to a retraction in rental rates and …….