Investing in self storage has become a popular path within real estate due to its steady income potential, relatively low maintenance demands, and resilience across economic cycles. Unlike many traditional real estate investments, self storage attract a consistent demand from tenants of all kinds—from families and small businesses to larger commercial tenants.
For those considering diversifying their portfolios, learning how to invest in self storage is a valuable pursuit. And, being a new London Self Storage company ourselves, (one that seeks to redefine the industry) we're well placed to help you make an informed decision.
Let's dive in!
Table of Contents
- Why start a self storage business?
- Different classes of self storage facilities
- Class A facilities
- Class B facilities
- Class C facilities
- Specialised self storage units
- Investment types – Understanding the main paths to self storage investing
- Direct ownership – Control and hands-on management
- Self storage REITs – Passive income with market exposure
- Private equity and syndication – Shared ownership with reduced risk
- Key considerations when investing in self storage space
- Market research
- Local zoning laws
- Security features
- Property management
- Financial metrics and performance indicators
- Rental income
- Operating expenses
- Cash flow
- Net operating income (NOI)
- Best practices for managing and optimising self storage facilities
- Implement robust security features
- Provide exceptional customer service
- Conduct regular market research
- Utilise effective marketing strategies
- Emerging trends in self storage
- Smart technology and automation
- Sustainable storage practices
- Micro-storage in cities
- Climate-controlled units
- Mobile storage solutions
Why start a self storage business?
The self-storage sector has transformed from a niche market into a booming industry, generating billions in annual revenue. Originating in the 1960s in the U.S., the self storage market has grown globally, driven by factors like urbanisation, lifestyle changes, and the rise of e-commerce.
Today, the industry serves not just households but also businesses, with facilities offering flexible solutions for various storage needs. The key to its ongoing success lies in adaptability—whether during economic downturns or periods of growth, the demand for storage remains steady.
People relocate, downsize, or need extra space during life transitions, making self-storage a recession-resistant investment.
Self-storage is also appealing to investors because of its lower overheads and maintenance demands compared to residential or commercial properties. With fewer tenant interactions and predictable costs, it offers a relatively hands-off investment that generates steady, passive income.
Plus, self-storage diversifies a real estate portfolio by balancing out risk from other property types, such as residential or commercial.
Different classes of self storage facilities
In the self storage industry, there are distinct sectors that cater to varied customer needs and investment goals. Understanding these differences is essential to identifying the most suitable self storage investment for your portfolio. Each class comes with specific benefits, challenges, and revenue potential.
Class A facilities – Class A self storage facilities are often newly built and located in premium areas with easy access. These facilities typically feature amenities like climate-secure units, state-of-the-art access control systems, and advanced security measures such as CCTV and perimeter fencing.
Class A facilities cater to clients seeking convenience, security, and added amenities, making them an ideal choice for investors looking for high rental income. These facilities, however, require a substantial initial investment due to their advanced infrastructure.
Class B facilities – Class B facilities typically offers a balance between affordability and accessibility, making them appealing to a broader range of customers. Located in moderately populated areas, Class B facilities may lack some of the high-end features of Class A facilities, but still provide secure, convenient storage spaces.
They often include essential security features and reasonable amenities, making them suitable for customers who need reliable storage without premium pricing. For investors, Class B facilities can generate steady income stream with lower operational costs compared to Class A.
Class C facilities – Class C facilities are budget-friendly options, usually located in more rural or less desirable areas, targeting budget-conscious tenants. These facilities are generally simpler in design and may lack climate control or extensive security features.
Because of their affordability, Class C facilities can attract customers who require long-term storage but are not looking for high0end amenities, Investors interested in Class C facilities should consider the potential for lower occupancy rates, though the initial investment is often lower, and operating costs are typically manageable.
In addition to facility classes, there are specific types of self storage units that cater to niche demands.
Climate controlled units – The have become increasingly popular for items sensitive to temperature and humidity changes, such as artwork and electronics.
Vehicle Storage – This is another profitable niche, providing secure storage space for cars, boats, and RVs.
These specialised unit attract customers with specific storage needs, often yielding higher rental rates than standard self storage units.
Investment types – Understanding the main paths to self storage investing
Self storage investments can be structured in several ways, each offering a different balance of risk, control, and potential return. Below, we outline the primary investment methods for self storage.
Direct ownership – Control and hands-on management
For those exploring how to invest in self storage, there are several approaches available depending on one's level of involvement and risk tolerance. It involves purchasing and operating a self storage facility.
This gives the investors full control over facility management, including rental rates, operating expenses, and upgrades. This approach provides flexibility to implement unique strategies, such as targeted marketing to attract certain tenant demographics or adding amenities to differentiate the facility.
However, direct ownership requires a commitment to property management and operations. While some investors enjoy the hands-on aspect of managing a facility, others may prefer hiring a professional property management company to handle daily tasks and streamline operations to ensure efficient management.
Self storage REITs – Passive income with market exposure
Self storage Real Estate Investment Trusts (REITs) offer a more hands-off way to invest in self storage units. This type of investment provides an option for passive investors who want to benefit from the self storage industry without managing properties directly.
By buying shares in a self storage REIT, investors gain exposure to large portfolios of storage facilities, which are managed by industry professionals. Self storage REITs provided steady income stream through dividends without the need to manage a facility personally.
Self storage REITs offer several advantages, including portfolio diversification, professional management, and liquidity. Investors can buy and sell shares, making it easier to enter or exit the market.
However, REITs often generate lower returns compared to direct ownership due to management fees and dividend payouts, therefore it is more suited to those who want a more passive investment with lower operational costs as the return may vary based on market trends and REIT performance.
Private equity and syndication – Shared ownership with reduced risk
Private equity or syndicated investments involve pooling funds with other investors to acquire and operate a self storage facility or portfolio. This approach often requires a smaller individual investment and enables access to larger facilities or multiple storage properties.
Private equity investments may involve fees and management charges, so investors should research terms carefully to ensure potential returns align with their goals. A self storage business can offer attractive returns on investment, with many investors seeing annual returns of 10-15% or more.
This investment type is beneficial as it reduces individual risk by spreading costs and responsibilities among several investors. Syndicated investments are ideal for those looking to gain exposure to self storage without the full responsibilities of ownership.
Each investment type has its advantages, and the right choice depends on factors like available capital, desired involvement, and risk tolerance.
Key considerations when investing in self storage space
Investing in self storage requires a careful assessment of market conditions, financial viability and, and regulatory requirements.
Market research
This is a crucial step in any self storage investment. By analysing the storage market, investors can determine the demand for self storage units in a specific location, assess potential competition, and identify factors influencing rental rates.
Thorough market research should include evaluating existing facilities in the area, studying demographics, and understanding regional market trends. This analysis will help investors identify the best locations for self storage investments and anticipate the likely customer base.
Local zoning laws
This can affect the development of a self storage facility, as certain areas may have restrictions on commercial storage properties. Compliance with zoning laws is essential to avoid fines, operational limitations, and costly delays. Researching local regulations before purchasing or building a storage facility can help investors make informed decisions and ensure smooth business operations.
Security features
This is a vital part of any storage facility, as customers are entrusting their belongings to the facility. Essential security measures include access control systems, CCTV cameras, and secure fencing to protect the premises.
In many cases, enhanced security features contribute to maintaining high occupancy rates by providing peace of mind for customers. Investors should budget for security upgrades as part of operating expenses, as these can positively impact rental income and customer satisfaction.
Property management
Another key factor in ensuring efficient facility operations. A professional property management company can handle day-to-day responsibilities, such as leasing self storage units, handling maintenance, and overseeing customer service.
Hiring experienced management can also streamline operations and help maintain occupancy rates, maximising cash flow and minimising operation costs.
Financial metrics and performance indicators
Financial considerations in self storage investing extent beyond initial investments, as rental income and ongoing costs play significant roles in determining profitability.
Rental income
The income generated from leasing self storage units are the primary revenue source, and it is affected by factors such as location, unit type, and occupancy rates. Investors must evaluate the rental reates of competing facilities to set competitive pricing.
Additionally, offering promotions, flexible rental terms, and exceptional customer service can attract and retain customers, leading to higher occupancy and stable rental income. Rental income projections should account for seasonality and economic conditions, as these can impact demand.
Operating expenses
This is an important considerations, as they directly affect net operating income (NOI) and overall profitability. Typical operating expenses include maintenance, utilities, insurance, and property taxes. Investors can optimise operating costs by adopting energy-efficient practices, implementing security systems with low maintenance, and scheduling regular maintenance.
Efficient management of operating expenses is essential in achieving low operating costs, particularly in competitive markets where rental rates may fluctuate.
Cash flow
This is the difference between revenue and expenses, and it's essential for sustaining a self storage investment. Positive cash flow ensures that the facility can cover operating expenses and generate profit for the investor.
To maximise cash flow, investors should focus on maintaining high occupancy, managing expenses carefully, and implementing strategies to increase rental income. Cash flow stability is particularly important in self storage, as unexpected vacancies or repairs can impact revenue temporarily.
Net operating income (NOI)
NOI measures a facility's overall profitability after all operating costs. Higher NOI usually translates into a more valuable facility that attracts higher rental income and a broader range of potential buyers.
Investors should also consider financing options carefully, as loan terms can affect cash flow and NOI. Lower interest rates, flexible loan terms, and longer repayment periods can improve cash flow by reducing monthly debt obligations. Some investors may choose to refinance loans after achieving stable ash flow to lower interest costs, making self storage investments more sustainable over time.
Best practices for managing and optimising self storage facilities
To maintain a successful self storage facility, investors and property managers should focus on tenant satisfaction, cost control, and streamlined operations. Here are several best practices for optimising facility management:
Implement robust security features
Security is a top priority for tenants, especially those storing valuable items. Consider installing advanced security systems, including CCTV, gated access control, and perimeter lighting, to enhance the facility’s appeal and justify higher rental rates.
Provide exceptional customer service
Customer service can set a facility apart in a competitive market. Friendly and efficient staff, easy-to-navigate rental processes, and quick response times to tenant inquiries foster positive relationships and increase tenant retention.
Conduct regular market research
Staying up-to-date with market trends and tenant preferences can help investors adjust rental rates, improve amenities, and identify new growth opportunities. Market research helps identify areas with consistent demand, allowing investors to make data-driven decisions.
Utilise effective marketing strategies
Online advertising, SEO, and social media marketing are essential for reaching prospective tenants in a digital-first world. Effective marketing highlights the facility’s strengths, such as vehicle storage, climate-controlled units, or competitive pricing, attracting diverse tenant demographics.
By following these best practices, investors can improve facility performance, increase occupancy rates, and achieve a healthy cash flow.
Emerging trends in self storage
The self storage industry is rapidly evolving with new trends that cater to changing consumer demands and technological advances. Here’s a look at the top trends reshaping this sector.
Smart technology and automation
Self storage facilities are increasingly adopting smart technology—such as keyless access, remote monitoring, and automated billing—to enhance convenience and security. This tech reduces operating costs and improves tenant satisfaction, making facilities more competitive.
Sustainable storage practices
Eco-friendly initiatives are growing within self storage, with facilities now implementing energy-efficient lighting, solar panels, and sustainable building materials. These practices appeal to eco-conscious tenants and help reduce operational expenses.
Micro-storage in cities
Urban demand has spurred the rise of micro-storage facilities, which offer compact, affordable storage options for city residents with limited space. These smaller facilities are less costly to build and can generate high occupancy rates in densely populated areas.
Climate-controlled units
Demand for climate-controlled units continues to grow, as tenants increasingly store sensitive items like electronics and artwork. While these storage units require higher upfront costs, they attract premium rental rates, making them a valuable addition in regions with extreme temperatures.
Mobile storage solutions
Mobile storage provides flexibility by delivering storage units directly to clients' homes or businesses. This model is popular among people in transition, offering a convenient alternative to traditional storage facilities and creating new opportunities for investors without requiring large physical spaces.
Conclusion
Investing in self storage presents a compelling opportunity for both seasoned and new investors. With its ability to generate steady income, low maintenance requirements, and resilience during economic fluctuations, making investing in self storage a standout and solid choice.
By understanding the various strategies and considerations involved—such as facility classification, investment types, and essential financial metrics—investors can make informed decisions that align with their financial goals. Additionally, staying abreast of emerging trends, such as smart technology, sustainability, and mobile storage solutions, can further enhance investment potential and market positioning.
As the self storage market continues to grow and evolve, now is an opportune time to explore how to invest in self storage. With thorough research, strategic planning, and effective management, you can build a successful self storage investment portfolio that thrives in today's dynamic market.
HOLD can satisfy all your self storage needs!
HOLD Kings Cross offers climate-secure units and first-class security for all our customers. With a top-notch team and more amenities than you can shake a stick at, we're transforming London storage. Pop into our Kings Cross facility, or get a free quote.
Frequently asked questions
What is the typical return on a self storage investment?
Returns vary based on facility location, size, and management. Self storage investments typically yield strong returns, especially in high-demand areas.
Do self storage facilities perform well during recessions?
Self storage is often resilient in economic downturns. People require storage during life transitions, which supports consistent demand.
Is property management essential for self storage?
For large facilities, professional management can streamline operations and improve tenant satisfaction. Small-scale investors may manage independently, but hiring a management company can enhance performance.
What factors impact rental income in self storage?
Location, occupancy rates, and amenities influence rental income. Facilities with premium features, like climate-controlled units, can charge higher rates.
How much does security affect tenant attraction?
Security is a key factor for most tenants. Facilities with CCTV, access control systems, and secure fencing attract and retain tenants better.
Are there tax benefits to investing in self storage?
Self storage investors may benefit from tax deductions on mortgage interest, property depreciation, and operating expenses. Consult a tax advisor to explore specific deductions.
What is a Class C self storage facility?
Class C facilities are often older buildings in less desirable locations. They appeal to budget-conscious customers and require minimal investment.
Can I invest in self storage without direct ownership?
Yes, options like self storage REITs or syndicated investments offer passive income. These options suit investors who prefer low involvement.
