Podcast Summary
The Growth of Self-Storage in the US: Self-storage has become a $45 billion industry due to high housing costs, urbanization, and consumer culture. One in five Americans rent a unit, and the industry's roots date back to the 1960s.
Self-storage has become a significant industry in the US due to a combination of factors including high housing costs, urbanization, and consumer culture. People's attachment to their belongings has made self-storage an attractive business, with one in five Americans renting a unit. The industry's roots date back to the 1960s when entrepreneurs saw the potential in buying land outside of city centers and setting up a self-storage facility as a way to generate income while waiting for the population to grow enough to build more profitable developments. However, investors soon realized that self-storage facilities had high occupancy rates and kept the units instead of selling them. Today, the self-storage industry is estimated to be worth $45 billion.
The Self-Storage Industry in the US: Size, Ownership, and Growth: The US self-storage industry is a large market with 52,000 facilities, 20M units, and high occupancy rates. Extra Space Storage, with 283M leasable SF and 2.6M units, is a major player. Self-storage is a low-maintenance business with quick unit turnover and high occupancy.
The self-storage industry in the United States is a significant market, with approximately 52,000 facilities and over 20 million individual units. The majority of these facilities are owned by small to mid-size operators, while a few large corporations like Extra Space Storage, Public Storage, U-Haul, and CubeSmart control the rest. Extra Space Storage, where Zach Dickens, the Chief Investment Officer, works, has grown into one of the largest self-storage operators globally, managing around 283 million leasable square feet and 2.6 million units. Self-storage units come in various sizes, from as small as 25 square feet to larger ones, even reaching the size of a two-car garage. Rental prices depend on size, location, and amenities, with an average of around $180 per month. For facility owners, most of the rent is profit, as operating costs include property tax, insurance, and utilities, and management fees. Compared to residential real estate, self-storage is a low-maintenance business, with vacated units ready for rent quickly after tenants move out. The industry also experiences high occupancy rates, with around 90% of units typically occupied, and a relatively easy process for replacing departing tenants.
Understanding Customer Base and Usage Patterns in Self-Storage: The average self-storage tenant stays for 14-16 months, with millennials and Gen Z using it for active lifestyle items, while baby boomers store memories. Self-storage usage varies from transition periods to extended living space.
The impact of an anchor tenant going out of business in a retail space is significantly greater than the loss of a few self-storage customers. Self-storage units are typically rented on a month-to-month basis, and most tenants end up staying for an average of 14 to 16 months. People use self-storage during times of transition in their lives, such as graduating from college, deployments, or moving homes. Additionally, many people use self-storage as an extension of their living space due to lack of room, especially millennials. Unlike baby boomers who tend to store memories, millennials and Gen Z use self-storage for active lifestyle items. This demonstrates the importance of understanding the unique customer base and usage patterns in the self-storage industry.
Boom in Self-Storage Demand Due to Housing Costs and Consumer Habits: Self-storage auctions rarely generate significant revenue due to tenants storing mostly sentimental items rather than valuable treasures.
The rising cost of housing and the increasing love for accumulating stuff in America have led to a boom in self-storage demand. People store various items, from furniture to vehicles and even business inventory. Tenants are required to insure their units and are prohibited from storing more than $5,000 worth of items. When tenants fail to pay rent, their units are seized and auctioned off. However, the reality is that these auctions rarely generate significant revenue due to the majority of stored items being sentimental belongings rather than valuable treasures.
The Reality of Storage Unit Auctions: Only 1-3% of storage units are auctioned annually, and the process involves logistical and financial challenges, including disposing of unusual items and trying to locate renters to return excess proceeds.
While some storage unit auctions can yield significant finds and profits, the majority of storage unit contents do not sell for high prices and can present unique challenges for storage facility operators. These challenges range from the logistical, such as finding a place to dispose of cremated remains or dealing with illegal items, to the financial, such as trying to locate renters to return excess proceeds. Industry experts estimate that only around 1-3% of storage units are auctioned off each year, and there are strict laws in place requiring notice before an operator can sell someone's belongings. While the occasional high-value find, like Elon Musk's purchase of a James Bond car, makes headlines, the reality of storage unit auctions is often more complex and less lucrative.
Self-storage thrives in all economic conditions: Self-storage provides essential space solutions for tenants, attracts institutional investment, and utilizes underused land.
Self-storage is a resilient industry that thrives in various economic conditions. People rent storage units not to sell their belongings, but to declutter and keep their possessions. The industry has seen increased investment from institutional players, resulting in new construction, even in high-growth areas where legislators have imposed moratoriums. Self-storage provides a valuable use for underutilized land and serves as an essential solution for tenants seeking extra space due to housing affordability or smaller living quarters. Despite being perceived as a symptom of over-consumption, self-storage units serve as a home away from home for many individuals.
Using storage spaces to declutter and prioritize: Having extra storage space helps identify and prioritize valuable possessions, leading to a decluttered and focused life
Having a significant amount of storage space can help us identify and prioritize the items that hold the most value to us over the long term. Half of the speaker's friends have storage spaces, which they use to keep their belongings for various lengths of time. This practice allows them to assess the importance of their possessions and focus on what truly matters. The economics of everyday life, as discussed in this episode of Freakonomics Radio, reveals that having storage space is not a bad thing, but rather a valuable tool for decluttering and prioritizing. The production of this episode was handled by Zachary Trockett, Sarah Lilly, and Jeremy Johnston, with assistance from Daniel Moritz-Raphson. The speaker also mentioned the importance of ensuring that storage spaces are not empty, as an unexpected discovery of an unoccupied one can lead to unwanted surprises.
