Self-storage real estate investment trusts (REITs) are some of the best-performing real estate stocks over the past few years, with average earnings rising by 50% on average over the past three years.
Self-storage occupancy dipped in late 2022 even though move-ins were in line with historic trends up to that point. While declining market demand and construction-related headwinds are concerning, the average availability of self-storage REITs is still well above pre-pandemic levels.
What are Self-Storage REITs?
Self-storage REITs develop, own and manage storage facilities and rent them to individuals and businesses. With short-term rental contracts, people looking to safely store their belongings or small businesses searching for affordable places to stockpile their inventory opt for such storage units. Self-storage units come in different sizes, depending on the space required
Common uses for self-storage are:
- Keeping valuables safe
- Renovating
- Storing goods
- Downsizing
- Relocating
- Business Storage
- Storing Vehicles
Benefits of Self-Storage REITs
High demand: The low cost of renting a self-storage unit combined with lower space availability in metropolitan cities has significantly raised the demand for self-storage units over the past decade.
Low Costs. It is relatively easy to operate a self-storage facility, as they require minimal maintenance. And because the cost of building a self-storage facility is low, they often have significantly higher turnovers and break-even rates.
Lease Terms: Self-storage units are typically rented on a month-to-month basis. This is especially beneficial for operators in periods of high inflation since rents can be adjusted quickly to keep up with rising costs.
Risks of Storage REITs
Lease Structure. The leases on storage units are usually short-term. Monthly rentals means more risk for vacancies and competition from other facilities.
Oversupply. Because of the high-profit margins on self-storage units, REITs often overestimate the market demand for such facilities in a given region, resulting in unoccupied spaces. Because they are easy to build and maintain, some REITs focused on other real estate sectors might enter this space, resulting in a severe oversupply risk.
Systematic Risks. People often begin cutting down on frivolous discretionary expenses such as renting a storage unit during a recession. As inflation levels have raised charges on self-storage units, renting one has become relatively expensive. Self-storage units have a short-term lease structure that are typically renewed on a monthly basis. As a result, people might stop renting such spaces during a market downturn.
Lease Terms: The short-term lease structure on self-storage units is also a risk. Since tenants can leave with just a 30-day notice, occupancy levels could quickly fall if people and businesses are looking for ways to cut costs during a recession.
How to Invest in Self-Storage REITs
Most REITs are publicly traded like stocks. You can trade them through your preferred online stock broker during stock market trading hours.
Investing in publicly traded REITs can increase your dividend income significantly, as these organizations are required to distribute at least 90% of their total taxable earnings to shareholders.
Largest Self-Storage REITs
Public Storage (PSA)
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| Open260.300 | Close262.170 |
| Vol / Avg.699.043K / 708.151K | Mkt Cap46.064B |
| Day Range257.050 - 263.260 | 52 Wk Range233.180 - 312.250 |
Public Storage (NYSE: PSA) is the largest self-storage REIT in the world, with over 170 million square feet of net rentable space. It is a Fortune Global 500 company and a constituent of the S&P 500 index.
Extra Space Storage (EXR)
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| Open132.400 | Close134.640 |
| Vol / Avg.1.147M / 1.150M | Mkt Cap28.493B |
| Day Range131.020 - 136.000 | 52 Wk Range101.190 - 164.990 |
Headquartered in Salt Lake City, Utah, Extra Space Storage Inc. (NYSE: EXR) is the second-largest self-storage REIT in the U.S. It owns and manages approximately 164 million square feet of rental storage space in 1.5 million units across the country.
The company also acquired Storage Express in the third quarter, which should bolster its market share in the remotely managed storage sector.
CubeSmart (CUBE)
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| Open41.490 | Close42.120 |
| Vol / Avg.1.681M / 1.457M | Mkt Cap9.605B |
| Day Range41.090 - 42.255 | 52 Wk Range33.175 - 47.810 |
CubeSmart (NYSE: CUBE) is a self-administered REIT operating 1,272 units across the country. It also manages 663 stores through its third-party management platform.
Industry Overview
| Number of REITs | 4 |
| Average Dividend Yield | 4.36% |
| YTD Total Return | -14.93% |
| October Total Return | -11.33% |
| 2022 Total Return | -26.73% |
Quarterly Performance Data
| Financial Metric | Q3 2023 | 2023 YTD |
|---|---|---|
| FFO ($M) | $1,396 | $4.036 |
| NOI ($M) | $1,704 | $1,704 |
| Dividends Paid ($M) | $1,022 | $3,154 |
| Same Store NOI | 1.67% |
All Self Storage REITs
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
REIT Alternatives
REITs provide a low-cost and simple way to invest in real estate. However, they aren't the only option available to generate passive income through real estate with a low minimum investment.
Real estate crowdfunding offers investors the ability to decide which properties they want to invest while still enjoying passive income at a fraction of the cost of traditional methods of investing in real estate. Here are some of our favorite real estate crowdfunding platforms:
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Must be accredited investing a minimum of $25,000.
