Marcus & Millichap: A solid, not spectacular, self-storage year on the way?

U.S. residents love their self-storage units. And that remains good news for anyone investing in this sector of the commercial real estate industry. As the recently 2020 Self-Storage Investment Forecast from Marcus & Millichap says, expect this year to be yet another strong one for the self-storage industry.

As Marcus & Millichap reports, the self-storage industry reached a peak in 2018. That’s when a record-setting 67 million square feet of self-storage space hit the country. After that record, deliveries of self-storage space tapered off – but remains strong – in 2019. And Marcus & Millichap is predicting the same for 2020: There’ll still be plenty of self-storage delivered in 2020, but the amount won’t match what hit the market in 2018.

However, there will be challenges in 2020, too. Marcus & Millichap points to the many years of elevated construction in this industry. Consumers today have plenty of options when it comes to storing their stuff. As self-storage owners compete for customers, many will lower their monthly asking rents. Marcus & Millichap says that tenants will enter these leases at lower rates and will rent their storage units for a longer term. At renewal, though, monthly payments will jump by as much as 10 percent.

Marcus & Millichap also predicts that the national self-storage vacancy rate will rise by 10 basis points to a still-low 10 percent in 2020.

One of the more interesting tidbits in the report focuses on the conversion of vacant big-box retail space into self-storage units. Marcus & Millichap says that more than 8 million square feet of space is expected to be converted to self-storage this year across roughly 50 markets.

Marcus & Millichap also said that rising warehouse rents should benefit the self-storage industry. That’s because the number of commercial renters – which already make up one-fifth of the tenant base of self-storage facilities – might grow as small businesses consider alternatives to renting more costly traditional warehouse space. The smaller space of self-storage units, along with the more affordable costs and shorter lease tearms, offer an often favorable option for smaller companies.

Marcus & Millichap said that warehouse rents have risen by an average of more than 6 percent each year during the past five years. This might cause more companies to shift their needs to self-storage units.