Since self storage emerged as a business model in the 1960s, its use has steadily risen. In 1988, 2.7 per cent of American households rented a storage unit. By 2024, that figure had reached 11.1 per cent. Buoyed by macro trends such as population growth and urbanization, storage has quickly become a staple for individuals, families, and businesses.
This article, which examines how family offices are
allocating their assets to alternative investments, is written by
Ryan Gibson, the chief investment officer of Colorado-based
Spartan
Investment Group, a privately held real estate investment
firm specializing in the self-storage industry.
Those who wish to respond with comments can email: tom.burroughes@wealthbriefing.com.
Comments of guest contributors are not necessarily endorsed by
the editorial team.
A recent report from JP Morgan found that, on
average, family offices are allocating 45 per cent of their
assets to alternative investments[1]. This shift from the
traditional stock and bond portfolio reflects a greater tolerance
for illiquidity risk and correlates with a growing appetite for
alternatives among younger generations of investors. It also
makes sense in light of broader market trends.
The global financial crisis of 2020 sent the S&P 500 into
flux and saw inflation reach record highs. Unsurprisingly, this
prompted investors to embrace alternatives that have historically
demonstrated low correlation with the market – such as real
estate, commodities, and private debt – in larger volumes.
Commercial real estate has proven particularly popular. As of
2024, 77 per cent of family offices included real estate in their
portfolios. Within this asset class, one of the best-performing
sectors is self-storage. Stable, resilient, and consistently in
demand, storage offers an avenue to build wealth while
safeguarding against economic downturns.
The evolution of a high-growth asset class
Since self storage emerged as a business model in the 1960s, its
use has steadily risen. In 1988, 2.7 per cent of American
households rented a storage unit. By 2024, that figure had
reached 11.1 per cent. Buoyed by macro trends such as population
growth and urbanization, storage has quickly become a staple for
individuals, families, and businesses.
Individuals and families turn to self storage when navigating
life events such as moving, downsizing, divorce, or death – all
of which continue regardless of market conditions. Meanwhile,
business owners rely on storage to warehouse their inventory,
especially since the pandemic, when many companies reduced their
physical footprints.
This enduring popularity has made self storage a remarkably
resilient asset class. It performed well during the 1987, 2000,
and 2008 recessions and occupancy and returns increased during
Covid-19. In fact, self storage outperforms most asset classes in
terms of both stability and return on investment (ROI). According
to NAREIT, self storage has netted an average annual return of
17.26 per cent over the past 28 years. That exceeds returns from
apartments, retail, office, and the S&P 500 during that same
period.
Even as the industry returns to more familiar, seasonal patterns
post-pandemic, it”s clear that any headwinds exist within the
context of an overarching pattern of growth. Mordor Intelligence
Research valued the self-storage market at $87.65 billion in 2019
and estimates it will reach $115.62 billion by 2025, a compound
annual growth rate (CAGR) of 134.79 per cent.
A hedge against inflation
With annual rent growth largely outpacing the consumer price
index (CPI), storage has proven to be an effective hedge against
inflation. Because storage is such a staple for Americans,
facilities have an average occupancy rate of 96.5 per cent, and
according to Yardi Matrix, rents have risen by an average of 5.8
per cent over the past five years.
Unlike office, retail, and multi-family, self storage utilizes
short-term, 30-day leases, making it easier for operators to
adjust their financial models to keep pace with operating costs.
This results in reliable, inflation-adjusted revenue, a benefit
that is passed onto investors via their returns.
Investors who choose to participate in self storage through
syndications can also realize significant tax advantages.
Depreciation allows investors to deduct the cost basis of a
property over its useful life – even if its market value
increases. Cost segregation can accelerate this by categorizing
certain assets within a shorter depreciation schedule, thus
frontloading deductions in the first five and 15 years of
property ownership. Together, these benefits can result in
thousands of dollars of annual tax write-offs, enabling investors
to reduce their tax burden and maximize their returns.
Selecting the right partner
As with any alternative asset class, self-storage is best
deployed as part of a diversified portfolio. In contrast to
stocks and bonds, commercial real estate tends to entail a longer
transaction cycle, and some deals include lock-up periods where
investments cannot be redeemed. As such, family offices should
invest in a balance of higher- and lower-liquidity holdings to
mitigate risk and achieve a well-balanced asset mix.
In addition, self-storage requires considerable operational
expertise. A facility’s location and quality can significantly
impact its outlook. Today’s customers favor modern facilities
with amenities that align with the local market. For instance,
urban apartment dwellers tend to opt for smaller,
climate-controlled units, while businesses may prefer the
convenience of drive-up units. An experienced operator will have
the know-how to judge where a facility will succeed and have the
necessary tools and team in place to optimize its performance.
That makes due diligence an important factor when considering a
partner. Because the operator or sponsor will be responsible for
vetting individual deals, investors must employ a rigorous
process to ensure that the company they invest with has the
knowledge and resources to steward their funds effectively.
Stable, consistent, and in-demand
Family offices seeking to expand their alternative allocations to
include self-storage have several options. Real estate investment
trusts (REITs) provide a low barrier-to-entry approach while
offering the benefits of professional management. However,
investors looking for more control and potentially higher returns
may prefer the syndication model.
Syndications allow investors to pool resources to participate in
self-storage deals, providing them with more oversight into the
locations, markets, and types of projects they target. For
example, depending on their risk tolerance and investment goals,
investors may focus on ground-up development, value-add, or
core-plus properties or portfolios. However, given the key role
that a sponsor will play, it is vital that investors choose a
partner they trust. Family offices should take the time to select
a sponsor who reflects their values and offers a risk-return
profile that aligns with their strategic objectives.
PwC estimates that, by 2025, alternative assets under management
(AUM) will have climbed to $145.4 trillion. Self-storage presents
family offices with an opportunity to keep pace with this pattern
by rounding out their real estate allocations with a stable,
in-demand asset class. By taking advantage of the self-storage
sector’s significant growth now, investors can position their
portfolios to reap the long-term benefits of a high-performing
and recession-resistant investment.
[1] JP Morgan Private Bank US (2024). 2024 Global Family
Office Report. 2024 Global Family Office Report | JP Morgan
Private Bank US.
https://privatebank.jpmorgan.com/nam/en/services/wealth-planning-and-advice/family-office-services/2024-global-family-office-report
