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Baby Boomers Creating Huge Demand for Self Storage PDF Print E-mail
Written by Scott Meyers   
Friday, 26 February 2010 17:44

Most U.S. Businesses including Self Storage owners continue to market to the powerful Baby Boomer generation, but generations X and Y should not be ignored.  As the Baby Boomers near retirement, Generation X workers are establishing themselves in careers and starting families.  In the meantime, Generation Y is graduating from college and entering the job market.

However, the first group of Baby Boomers are edging closer to retirement with the first wave due in the next few years.  Numbering almost 80 million, Baby Boomers make up about on-third of the country’s population. And although they have indicated that they will likely remain employed in either a full time or part time capacity after reaching retirement age, they continue to buy second homes and many other “toys” in anticipation of reducing the # of hours devoted to work.

This generation has also accumulated a vast amount of wealth through equity in their homes, inheritances, and wise long-term investments.  And as a result, they continue to spend more and more money on luxuries.

Baby Boomer “toys” include Recreational Vehicles (RVs) and wine, both of which are candidates for specialized Storage. According to the Recreational Vehicle Industry Association (RVIA), 2008 is expected to be one of the best years for RV sales in nearly three decades, following several double digit sales increases the past 2 years.  RV ownership is at a record high, totaling over seven million, a figure expected to increase by one million in the next 3 years.  In addition to empty-nesters, RVs are also appealing to young families seeking an affordable means of vacationing.  As demand for RVs increases, so will demand for places to store them, especially as Homeowners’ Associations become less tolerant of the storage of RVs in residential neighborhoods.

Wine buying has also become increasingly more prevalent among Baby Boomers, many of whom are amassing large collections of wine as a hobby.  While some store their bottles at home, an increasing number are also turning to self-storage facilities with areas designated to hold wine at the proper temperature.  In addition, it is believed that Baby Boomers are passing their affection for wine on to their younger children, creating another source of demand for wine storage, both now and in the future.

An aging population is generally predicted for the U.S. overall for the next few decades.  From 2000 to 2050, the U.S. Census Bureau reports that the percentage of population within the 20 to 44 age bracket will decline from 37 percent to 31 percent as the share of 65 to 84 group rises from almost 11 percent to nearly 16 percent.  The 45 to 64 group will remain steady near 22 percent, but the proportion of the population over the age of 84 is expected to rise from under two percent to about fie percent.  The graying of the nation’s populace will call for new demands in storage, likely ease of use in accessing units and enhanced services, such as free pick-up and/or delivery of goods.

In addition, regrettably, we will be losing a portion of our country’s boomers as they reach the end of their lives, which will trigger another need for storage.  Many owners of Self Storage facilities are already seeing an increase in occupancy caused by the settling of estates when a loved one passes on.  Once the house is sold, many of the goods and heirlooms are either kept by the family, or staged in a self storage facility until they can be sold or auctioned at another date.  Some remain there for years because the heirs just can’t stand the thought of parting with their family’s belongings.

So to sum it all up, I’ll quote Ben Stein, one of America’s foremost economists, from his keynote speech at the Self Storage Association Annual Conference and Trade Show Last year where he said “I can’t think of 1 single long term trend in our country and our economy that doesn’t benefit Self Storage – It’s the perfect storm – a Hurricane of Profits”. “This is the sweetest spot in the whole American economy; a Receptacle for an enormous cascade of money!”


“The Opportunity in Self Storage Right Now resembles the Opportunity in the oil industry in the 1950’s or Silicon Valley in the 1990’s – Ben Stein

I couldn’t agree more! 

Scott Meyers, CSSM© is the President and Owner of Indianapolis Based Alcatraz Storage™.  He is also the nation’s leading speaker and educator in the field of Self Storage Investing through his company SelfStorageInvesting.com

 
Why Self Storage is Recession Proof Real Estate PDF Print E-mail
Written by Scott Meyers   
Friday, 26 February 2010 17:21


They’re often called recession-proof – steady investments that are inexpensive and easy to maintain with consistent profit margins.

Not to mention, they’re one area of real estate that seems mostly unaffected, if not helped, by current rough market conditions.

They’re storage units and people always need them. And all across the country, with a growing population that provides a constant supply of people in transit and in need of storage, they’re shooting up everywhere. Storage facilities require relatively low building and management costs.

Storage facility operators are capitalizing on a constant of modern culture: Americans own a lot of stuff. According to the Self Storage Association (SSA), self storage has been the fastest-growing sector of the U.S. commercial real estate market for the last 30 years, growing into a $220 billion industry. The rate of growth, however, has slowed somewhat over the past two years.

A slow housing market can actually help storage facilities, according to industry analysts and local facility operators. As the housing market slumps, people downsize their house sizes and some are even foreclosed upon. People like to hold on to their possessions, and with the same amount of things but less space to put them, they look to storage facilities. Also, hesitant homebuyers store their possessions as they watch what happens to the housing market.

By looking at demographic and growth trends, it’s clear why storage units are in such high demand. Population is growing and while people wait for their homes to be built or are searching for homes, they store away their belongings. Also, people with second homes here often store their large possessions like snowmobiles and RVs in units while they’re away. Wealthier people have more belongings and often rent out more spaces.  Some just the basic concrete and metal sheds and others with climate-controlled heating systems. The climate-controlled units maintain a constant temperature of 58 degrees and are used for items vulnerable to the elements like wood and antiques.

Also, high fuel prices and economic slowdowns don’t generally deter wealthy people from enjoying their recreation and second homes.

Businesses use storage units too. Companies like the Old World Cabinet Company use the spaces as warehouses. With the high price of real estate in offices, sometimes it’s more economical to rent storage units than to buy up more space.

Excerpts taken from the Beacon

Scott Meyers, CSSM© is the President and Owner of Indianapolis Based Alcatraz Storage™.  He is also the nation’s leading speaker and educator in the field of Self Storage Investing through his company SelfStorageInvesting.com.

 
Why is Self Storage Suddenly So Hot! PDF Print E-mail
Written by Scott Meyers   
Friday, 26 February 2010 17:16


INVESTORS in self-storage stocks finally have some gains to stow away.

The four real estate investment trusts that together own and operate about 12 percent of the facilities nationwide — most of the other properties are mom-and-pop operations — has soared about 31 percent, on average, this year through Thursday, after finishing 2007 with a nearly 25 percent loss.
This year’s returns far surpass those of all other property REIT categories as well as the broader stock market. Equity REITs are up around 10 percent so far, on average, while the Standard & Poor’s 500-stock index is off about 5 percent.

Why is self-storage suddenly in favor?
Some investors believe that these dividend-paying companies will benefit from the housing crisis. They expect that the ranks of renters will swell as more people leave foreclosed homes or postpone buying their first homes because of tighter credit and falling values, and that those people will need repositories for their excess bric-a-brac.

Industry analysts agree that the sector is likely to hold up well through these economic woes. “It is recession resistant,” said Michael Knott, a senior analyst at Green Street Advisors, the investment research firm. “More economic distress causes people to rent more, and, in fact, one of the storage companies said recently that Detroit was one of the best markets.”

Indeed, Detroit had the highest foreclosure rate among the nation’s 100 largest metropolitan areas last year, with nearly 5 percent of its households in some stage of foreclosure, according to RealtyTrac.com, the online foreclosure listing service. RealtyTrac put the average nationwide rate at 1.03 percent as of Dec. 31, up from 0.58 percent at the end of 2006. Also high on the list were Las Vegas, Miami and Denver, along with several boom-and-bust cities in California.
But housing is only part of the story in self-storage, analysts point out. “It correlates to transition,” said Michael J. Salinsky, a REIT analyst at RBC Capital Markets.

Demand for storage space is often precipitated by life’s passages — marriage, divorce, retirement, enlistment in the military. In addition, use by small businesses has been growing, particularly by those that operate online. “Small businesses need off-site storage, for upsizing and downsizing,” Mr. Salinsky said, “and so do people working from their homes.”

In the last decade, he said, self-storage revenues have grown 4.4 percent a year, on average, compared with average growth of 3 percent a year for most other commercial real estate sectors.
This steady cash flow, which seems to transcend both good and bad economic times, is attractive to investors. During economic downturns, many investors look for such reliable income, engaging in a “flight to safety.”

“This is a cash-flow-driven business that has a low break-even point — expenses are low even if occupancy rates are not high,” said R. Christian Sonne, the managing director of the self-storage industry group at Cushman & Wakefield, which provides various consulting services for the sector.
A concrete-and-steel storage facility is typically far less expensive to build and to operate than, say, an office building or shopping center. There are, of course, the standard expenses associated with real estate, like utility costs, property taxes, insurance and payroll, but not too much more.

And after “a huge building boom in the early 2000s,” Mr. Sonne said, the development pipeline has been slowing of late, which is also reflected in the newfound resilience of the self-storage sector.
“The barriers to entry are becoming more difficult,” Mr. Sonne explained.

For one thing, financing for new structures is harder to get, he said, while zoning is stricter in many communities, which seem to prefer property types that might generate more jobs and tax revenue.
Still, plenty of storage space already exists. By the Self Storage Association’s estimate, there are around 51,500 primary facilities nationwide, as well as another 8,400 mini-storage places, or, as the association broke it down, almost seven square feet of rentable space for every person in the United States. A vast majority of this $220 billion industry, however, is made up of small businesses, making it the most fragmented among commercial property types.

Perhaps because of that fragmentation, “this is probably one of the sectors that is least understood,” said David Harris, a REIT analyst at Lehman Brothers.
Mr. Salinsky agreed, though he added that “in storage, you have to be a very dynamic operation to get the returns out of the property.” And that might include offering customer incentives like $1 rents for the first month and ancillary services like moving supplies and truck rentals. (A 10-by-10-foot space rents for less than $100 a month, on average, according to Mr. Sonne.)
*Excerpts found in The New York Times on April 27, 2008

Scott Meyers, CSSM© is the President and Owner of Indianapolis Based Alcatraz Storage™.  He is also the nation’s leading speaker and educator in the field of Self Storage Investing through his company SelfStorageInvesting.com.

 




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