THE NEW YORK TIMES THE NEW YORK TIMES BUSINESSBUSINESSWEDNESDAY, JULY 22, 2020WEDNESDAY, JULY 22, 2020 NN B7B7Commercial Real Estate
For years, the self-storage industry in
the United States has relied on what
insiders call the Four D’s: death, di-
vorce, displacement and disaster. But
the coronavirus pandemic, combined
with aggressive competition and brash
overexpansion, has made what once
seemed like one of the few recession-
proof parts of the commercial real
estate industry look as vulnerable as
many other businesses.
The industry had been expanding
since the last downturn as companies
increased their footprint, eager to meet
an appetite for storage space. Rising
rents attracted rivals that courted
consumers with new technology and
improved customer service.
Rents have begun to recede in the
pandemic, however. In June, monthly
rent for new customers before one-time
discounts for a 10-by-10 unit without
air-conditioning and heat, for example,
declined 4.3 percent nationwide on an
annualized basis, according to the
research site Yardi Matrix. For the
same unit with climate control, rent fell
6.7 percent.
And as coronavirus cases surge
around the country and leaders call for
more restrictions on schools and busi-
nesses seeking to reopen, the growth of
the self-storage industry could be ham-
pered further.
“Growth and new supply was start-
ing to weigh pretty heavily on funda-
mentals,” said Ryan N. Clark, director
of investment sales at Skyview Advi-
sors, a brokerage firm based in Tampa
specializing in self-storage sales. “The
Covid pandemic obviously accelerated
and exacerbated some of those chal-
lenges.”
In a sense, the longtime success of
the self-storage industry helped sow
the seeds of its current problems. The
industry got its start in the 1960s, when
swelling consumerism led Americans to
buy more stuff than they had room for.
Ever since, self-storage businesses
have steadily grown.
Rates for storage units, with climate
control and without, climbed nation-
wide in the years after the last reces-
sion as demand ballooned. Americans,
flush with discretionary income from
the economic boom, bought more stuff
and needed more places to store it.
The number of self-storage facilities
nationwide grew to more than 60,000 in
2020 from around 47,000 in 2008, ac-
cording to the research firm IBISWorld.
Revenue increased 2.6 percent annually
to $38.6 billion in 2019 from 2014. Devel-
opment of self-storage facilities surged,
and a wave of consolidation swept the
industry as larger operators sought to
capitalize on the growth.
This has all contributed to a profes-
sionalization in the industry. Not only
did the management and the invest-
ment in self-storage firms become more
sophisticated, the facilities grew
sleeker.
“They were single-story, cinder
block, surrounded by barbed wire,
gravel driveway, maybe a guard dog,
behind the industrial park or the
dump,” Joseph D. Margolis, chief execu-
tive of Extra Space Storage, said of his
industry’s facilities not too long ago.
“Now if you look at them, they look like
beautiful retail stores.”
The new look made consumers more
apt to rent, which drew more competi-
tion.
Thousands more operators, most tiny
independents, poured into the business,
and institutional investors followed as
self-storage shifted from being “more of
a cottage industry” in commercial real
estate, according to Joseph Iacono,
chief executive of Crescit Capital Strat-
egies, a lender. Publicly traded real
estate investment trusts such as Public
Storage and Extra Storage, the coun-
try’s two biggest operators by number
of facilities, bought up competitors.
The sector’s success — and the fact
that its customer service and market-
ing had been slow to change for dec-
ades before the last recession — also
gave birth to a new class of rivals fo-
cused on full-service options. Start-ups
backed by venture capital, such as
Clutter and MakeSpace, leaned more on
technology to interact with customers
and offered perks like pickup and deliv-
ery.
“Storage for the past few decades has
really not innovated on the customer
experience itself,” said Rahul Gandhi, a
co-founder and the chief executive of
MakeSpace, which was started in Man-
hattan in 2013. “Much of the stress of
this service has been put on the
customer.”
But the number of storage facilities
soon climbed past demand in many
places. Average rents for storage
started to decline slightly in 2018 and
2019 in some markets. Analysts begantalking about a peak in the industry,
which relies on the churn of Americans
moving their stuff around. The pan-
demic hastened the decline.
“You had less move-ins and less
move-outs,” said Mr. Clark of Skyview
Advisors. “When mobility is hurt, self-
storage is hurt.”
The industry also faced eviction
moratoriums in the pandemic similar to
the ones meant to protect residential
tenants. The most prominent was in
Los Angeles, which in June passed an
ordinance deferring rent and late fees
for self-storage tenants delinquent
because of the pandemic.
Self-storage suppliers struggled with
the same challenges that other indus-
tries were confronting, including keep-
ing surfaces cleaner and reducing the
potential for crowding at facilities.
States’ lockdown orders regarding
essential businesses also varied. Add-ing to the confusion, a federal directive,
revised in late March, placed self-stor-
age businesses among those deemed
“so vital to the United States that their
incapacitation or destruction would
have a debilitating effect” on the coun-
try.
Revenue buckled as rents stagnated.
By the end of May, the average rents
for the largest publicly traded self-
storage companies, including Public
Storage, Life Storage and Extra Space,
were about the same as the year before,
according to research firm Green Street
Advisors.
But self-storage companies keep
building, compounding the oversupply
challenge that the industry faced before
the pandemic. Properties under con-
struction or planned nationwide ac-
counted for 8.9 percent of overall inven-
tory in June, an uptick from the month
before, Yardi Matrix said.
The pace of new development is
expected to slow, however, in part as a
response to oversupply and because of
obstacles thrown up by the pandemic,
including the shutdown of construction
and permitting in some areas. New
supply in terms of properties and rent-
able square feet is expected to drop
through 2024, according to several
industry forecasts, similar to a decline
coming out of the last recession. This
should help rents rebound.
In the meantime, some operators will
be able to repurpose unrented units for
experiential retailing, conventionalretailing or last-mile delivery ware-
housing, according to Adam Petrillo,
head of the industrial services group at
the brokerage firm Savills. This will be
particularly true in mixed-use develop-
ments in urban areas that include self-
storage businesses.
And if that doesn’t work, there are
still the Four D’s. The coronavirus
might have worsened industry trends,
but Americans still need places to park
their stuff — maybe more so because of
the pandemic’s ripple effects, including
residential evictions and hasty reloca-
tions.
After several weeks of unevenness,
operators reported a turn toward typi-
cal rates of move-ins and move-outs
beginning in May. The occupancy rates
for the largest publicly traded providers
were north of 90 percent that month.
Even with the pandemic, the self-
storage industry remains a better fi-
nancial investment than other real
estate sectors, like offices, hotels or
even life sciences projects buoyed by
the hunt for Covid-19 therapeutics and
vaccines, although it lags malls, health
care and apartments, according to
Green Street Advisors.
In all of this, the industry might
prove to be recession-proof after all, or
at least immune to a pandemic.
“As the economy reopens in various
communities and people get back to
more normal,” Mr. Margolis of Extra
Space said, “we’ll snap back to normal
very, very quickly.”A Lot of Space, but Not Enough Stuff to Fill It
The self-storage industry had been growing for years. As the U.S. hunkers down, it’s a different story.
“Storage for the past few decades has really not innovated on the customer experience
itself,” said Rahul Gandhi, above, the chief executive of MakeSpace. “Much of the stress of
this service has been put on the customer.” Top and left, a MakeSpace facility in Edison, N.J.GABBY JONES FOR THE NEW YORK TIMESDEVIN OKTAR YALKIN FOR THE NEW YORK TIMESSquare Feet
By TOM ACITELLI
Rents that have long
risen begin to recede
in the pandemic.
DEVIN OKTAR YALKIN FOR THE NEW YORK TIMESRECENT SALE
$2.7 million
710 Degraw Street (between
Fourth and Fifth Avenues)
Brooklyn
This three-story, 3,938-square-
foot building in Park Slope has
three apartments and was deliv-
ered vacant. It was built in 1920.
Buyer:710 Degraw St M.M.
Seller:Luis Rios
Brokers: Toby Waring, Derek
Bestreich, Luke Sproviero, Adam
Lobel, Gabriel Kates and Daniel
Shawah of Bestreich Realty GroupRECENT SALE$1.3 million
72 Westchester Square (between
Fink and Westchester Avenues)
The BronxThis two-story, 3,500-square-foot
building in the Westchester
Square neighborhood has two
commercial units: The basement
and first floor were occupied by a
sporting goods store, and the
second floor is occupied by an
employment office. The building
has 23 feet of frontage and was
built in 1923.
Buyer:Russell Fridman
Seller:NC Schaffer Real Estate
Management
Seller’s Brokers:Jonathan
Squires and Michael Fioravanti of
Cushman & WakefieldFOR SALE$26.5 million
801-803 Greenwich Street (Be-
tween West 12th and Jane Streets)
ManhattanThese two buildings in the West
Village were built in 1920. At six
stories, 801 Greenwich has seven
apartments and one retail unit,
and 803 Greenwich is a four-story
building with three apartments
and one retail unit.
Seller:801 803 Greenwich Street
T.I.C.
Brokers:Colton Traynham and
Matthew Fotis of Marcus & Mil-
lichap, and Pamela S. D’Arc and
Stephen McArdle of CompassBESTREICH REALTY GROUP JONATHAN SQUIRES THANASSI KARAGEORGIOUSOPHIA JUNE
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