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For years, self-storage has been one of the unsung heroes, but it’s a massive industry in the United States. Data from SpareFoot compiled early this year pegs the total market size at $44.3 billion with over 52,300 self-storage facilities in the U.S. If you don’t rent self-storage space, it’s likely someone you know does; around 11% of households rent a storage unit.
A recent report from Moody's Analytics analyst Nick Villa charts the rise of self-storage after the pandemic. In 2021, net unit absorption was at a near-record high. Since 2019, asking rents for 10×10 storage units increased by a compound annual growth rate (CAGR) of 2.5% for non-climate-controlled units. As consumer spending shifted toward travel and away from home-related items, self-storage demand dropped. In 2023, the completion of units outpaced demand, and asking rents for non-climate-controlled units fell by 2.5%. Villa’s data shows that self-storage vacancy has risen to 13%, and he’s forecasting that vacancy will land in the mid-to-high-12% range by the end of the year.
Given these dynamics, one might wonder if self-storage is still a good fit for real estate investors interested in this sector. Self-storage is often popular with direct real estate investors because owning and operating a self-storage facility can be a lucrative investment, and it is relatively easy to get started. Those not willing to own directly can still participate in self-storage through fractional ownership and self-storage REITs. Several of those REITs will report earnings later this week, giving more insight into the trends mentioned by Moody's Analytics.
The State Of Self-Storage REITs
Nareit, the National Association of Real Estate Investment Trusts, tracks four REITs in the sector. For 2023, total returns were up 18.49%. In June, returns were up 7.33%, but they are down -2.28% year to date. The total dividend yield percentage for REITs tracked is 4.25%.
Extra Space Storage (NYSE:EXR) owns and operates approximately 3,793 self-storage properties under the Extra Space, Life Storage, and Storage Express brands. Its acquisition of Life Storage made it the largest operator of self-storage properties in the United States. According to Benzinga data, it has an annual dividend payout of $6.48 and a current yield of 3.94%. Although several insiders have sold shares recently, that doesn't appear to be a sign of distress. As the company continues to digest the Life Storage acquisition, we expect to see more efficiencies and consolidation, which should be good news for the bottom line. Extra Space Storage reports earnings later this week.
Public Storage (NYSE:PSA) was previously the leader in the space and is still one of the largest self-storage providers in the country, with interests in 3,045 facilities across 40 states. Benzinga shows an annual payout of $12.00 and a current yield of 3.99%. On the most recent earnings call, Joe Russell, President and Chief Executive Officer, said he was encouraged as the company entered its busy season. "Our view is supported by positive trends in customer behavior and waning deliveries of competitive new supply across the country." We expect to hear more about that during the next earnings report on July 31.
CubeSmart (NYSE:CUBE) is the third largest owner and operator of self-storage properties, with over 1,200 self-storage properties across the United States. CubeSmart pays an annual dividend of $2.04 with a dividend yield of 4.28%. On the most recent earnings call, CEO Christopher Marr noted that the housing market is one driver of the self-storage industry but that “the beauty of our business and why we're so resilient is that everyday life events are what create a demand for storage." We will hear more from him on the industry trends on August 2nd.
National Storage Affiliates Trust (NYSE:NSA) is the smallest of the big four, with 1,050 self-storage properties in 42 states and Puerto Rico. Benzinga data shows an annual payout of $2.24 and a dividend yield of 5.15%. During the most recent quarter, the company sold off 71 self-storage properties, which helped it pay off $130 million in debt. President and Chief Executive Officer David Cramer commented, "We completed a handful of strategic milestones during the first quarter, which places NSA in a position to thrive as business fundamentals and capital markets improve. We're excited about the medium- and long-term outlook for both NSA and the self-storage sector in general." National Storage Affiliates Trust reports earnings on August 6.
What do we want to hear from these self-storage companies? Critical data include occupancy rates, rent increases, and same-store sales growth. Self-storage for households is a discretionary item, and while self-storage delinquency rates remain low, we can expect to hear from each company about the overall strength of consumer demand. Despite a stabilization trend in the industry, these REITs should continue paying attractive dividends for many years.
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