A lot has been made lately of inflation, rising prices, and potential impact on the commercial real estate (CRE) asset class. As history has taught us, not all CRE sectors will respond in the same way to inflation, and if 2020 taught us anything, it’s that self-storage is one of the sectors investors will want to allocate to withstand inflation.
Self-storage is uniquely positioned to withstand economic downturns and inflation than most CRE sectors because of its consistent demand. One could even argue that self-storage can thrive in rough economic times. Self-storage demand is constant because both in a downturn and in an environment of rising prices, as consumers downsize their living quarters or move in with relatives, they need space to store their extra belongings.
Self-storage was one of the best performing sectors during the Great Recession – even outperforming multifamily. Compared to other sectors, self-storage consistently maintained occupancy rates above 90% during the height of the crisis.
Most recently, self-storage flexed its recession-resistance muscles during the COVID pandemic. As with almost every other sector, self-storage saw declines in rents during the first few months of the global pandemic.
However, after the initial economic shock from nationwide lockdown, self-storage was one of the few sectors (industrial, MHPs, and affordable multifamily being the others) that made a quick recovery – even showing year-over-year rent growth by the end of 2020.
Even as rents rose year-over-year in 2020, occupancy remained above 92% – demonstrating self-storage recession resiliency and immovable demand in the face of rising prices.
This is a good sign in the face of an inflationary environment. Besides recession resistance, self-storage is also uniquely positioned to confront inflation because most leases are month-to-month – giving operators the ability to raise prices more readily than operators of assets in sectors with longer leases without a dip in demand.
Self-storage performance in 2020 hasn’t gone unnoticed as the sector attracted big private equity and institutional investors like Blackstone.
The resilience of self-storage in 2020 and the last Financial Crisis makes it a solid choice for investor allocation. Even as big players enter the market, there will always be specific markets and asset classes ignored by big money that offer opportunities for smaller operators.
In other words, opportunities exist for investors of all sizes to generate recession and inflation-resistant income for those willing to take the plunge.