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Self-Storage: A Resilient Investment With Legs?

by John Brydon-Harris on September 15th, 2017

Locked self storage unit.
The idea of a recession-proof investment opportunity is persuasive. Nevertheless, with any investment there is an inherent risk. One area of real estate investment that shows potential for resilience in the face of economic uncertainty is self-storage facilities.

Lower maintenance and staffing costs, greater resiliency to higher vacancy levels, as well as the movement toward more compact living arrangements have all created an increased need for storage space. The result to date: New customer-friendly models and solid opportunities for continuing growth.

The niche appeals to both small and large-scale investors (including REITs), as both can benefit from the lower maintenance and staffing costs in the self-storage industry compared to those of multi-unit properties.

And the self-storage business has legs; according to a recent article in Maclean’s: “Self-storage is booming in Canada. Americans enjoy more self-storage space per capita than anybody-nine sq. feet-whereas Canadians lag at two. In that great discrepancy, the domestic industry senses room for growth.”

Across the country, much of the growth is driven by homegrown companies. In the GTA, for example, 30 plus new sites (some two million sq. feet) of new storage are now under development by Canadian companies.

On-demand delivery

Industry innovators appeal particularly to busy millennial clients with a storage model that includes pick up and delivery options. As well as affordable rates, many new facilities have incorporated value added services. Ottawa-based Dymon Group’s Etobicoke facility, now under construction, will feature a dedicated wine storage space and sommelier. Dymon trucks will also deliver and return seasonal items such as bikes or skis. Expected to include 500,000 sq. ft. (46451.5 sq. m), the development will be housed in a re-purposed warehouse.

It’s likely this continuing innovation will drive the growth of self-storage companies to create more choice and a greater sense of value for customers.

Potential barriers

In the meantime, many cities have yet to catch the wave. While U.S.-based MakeSpace now has storage facilities in four locations, others have found barriers to expansion. In many cases it’s proven more cost effective to retrofit an existing warehouse or industrial plant into a self-storage facility; it can be difficult to get approval for new construction in some locations, as local governments generally prefer to see increased construction of housing or other commercial/ industrial ventures that are more likely to create additional long-term employment opportunities.

Meanwhile regulations and incentives vary, and investors would be wise to thoroughly research the self-storage industry and the location under consideration. Concerning? Perhaps. But the eventual rewards may make it a worthwhile investment.

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