A History of Stability. Why Self-Storage Investments Can Avoid Downturns

As an accredited investor with a keen eye on commercial real estate investments, you're market conditions fluctuate and sectors can perform quite differently throughout the phases of the real estate cycle. Yet, amidst these ups and downs, self-storage investments have shown remarkable resilience over time. Their historical stability and steady demand, irrespective of the economic climate, position self-storage facilities as a potentially lucrative investment worth consideration. This blog explores why self-storage investments have emerged as a stronghold against downturns, offering insights for potential investors at Balcomie Capital.

Historical Performance During Economic Downturns

Throughout various economic recessions, self-storage investments have consistently outperformed other real estate sectors. While most real estate sectors suffered significant losses during the Great Recession of 2007-2009, self-storage investments showed resilience, bouncing back with a 5% gain in 2008, marking it as the only real estate sector to post in the black when losses climbed above 60 percent for some sectors. 

This resilience isn't just historical; it's a consistent trend. As cited by Neighbor, over the years, self-storage investments have boasted the highest total return and price increase on average since 1994, with a 16.73% total return and an 11.72% annual price increase​. The inherent demand for self-storage, fueled by Americans' love for their possessions, underpins this stability. Occupancy rates historically exceeding 90% nationwide highlight the sector's enduring appeal​ ​.

Inherent Stability Factors

Several factors contribute to the inherent stability of self-storage investments. The sector benefits from low overhead costs, as self-storage facilities require minimal staffing and maintenance compared to other types of real estate. Additionally, the demand for self-storage units is consistent, driven by societal trends such as downsizing and moving​​. The COVID-19 pandemic further underscored the industry's resilience, with self-storage being one of the few sectors to continue its upward trajectory despite initial market shocks​​.

How to Maximize Stability

Investors should consider strategic investment criteria and management practices to capitalize on the stability of self-storage investments. Market analysis, understanding demographics, and selecting locations with high population density and limited competition can significantly enhance investment success​​. Types of self-storage facilities, such as traditional, climate-controlled, or specialized storage for boats and RVs, offer various avenues for diversification and growth.

Many accredited investors choose to invest in private funds managed by sponsors who focus on self storage investments. By working with experienced sponsors, you’re able to relinquish all management responsibilities while also gaining access to high-quality self-storage properties you otherwise might not know about if you were pursuing a self storage investment on your own. Depending on the structure of the sponsor’s fund, you also may participate in a diversified portfolio of self-storage facilities, helping you mitigate risk.

Conclusion

In commercial real estate, self-storage investments are often regarded for  stability during challenging environments. Their ability to withstand economic downturns, coupled with low overhead costs and consistent demand, makes them an attractive option for accredited investors. At Balcomie Capital, we recognize the value and potential of self-storage investments and invite accredited investors to explore this sector's opportunities. When you embrace the stability and growth potential of self-storage investments, you also can help fortify and diversify your investment portfolio.