Self-storage falls in demand, but experts say investors shouldn’t worry yet

High interest rates in the housing market delaying moves. Simply having too much stuff. Moving out furniture to accommodate a shift to home offices. These are some of the reasons people use self-storage, and why investors have flocked to the sector.

However, as new units flood the market, national reports find that demand is beginning to fall, creating more competition for businesses and an oversupply in the market. Locally, though, investors remain optimistic about the long-term profitability of self-storage. Some examples are SRC Holdings Corp., which opened Enterprise Self Storage LLC on 1610 S. Enterprise Ave. last month, Sixty5 Self Storage, which opened in 2020 along U.S. Highway 65 on South Eastgate Avenue and then Devon Self Storage on Boonville Avenue in 2023.

“I’m not worried about the industry because there is always going to be a need,” said Sammi Sherron, manager of Keystone Self Storage LLC at 2503 N. Barnes Ave. “Maybe there will be an uptick one of these years.” 

According to a 2023 survey by StorageCafe, 1 in 5 Americans uses self-storage units.

As more self-storage facilities open in the Springfield area, oversupply has started to create changes for a market known for its resilience and necessity. However, Springfield investors say they aren’t too worried about the changing landscape. 

Investing in the market
In a self-storage market analysis conducted by Mordor Intelligence, the market is estimated to reach $72.15 billion by 2029. Estimated currently at $58.26 billion, the market has registered a compound annual growth rate of 4.37% during the forecast period.

One investor who saw the opportunity in the industry is Realtor Ken Schwab of Wilhoit Properties Inc. Schwab co-owns Best Storage on South Bedford Avenue, acquiring the property from a business associate about 15 years ago. He saw the move as a good return on investment, noting the self-storage industry is stable due to its resilience, as proven during the Great Recession.

“During the 2009 recession, we never dropped below 93% occupancy,” Schwab said. “Any real estate investment –whether it be an office building, an industrial property, multifamily – if you stay in the 90s over the life of your investment, you hit a home run. It told me that even with the recession, as difficult as it was for American households and businesses, they still valued keeping their possessions in self-storage.”

According to SpareFoot, which tracks self-storage data and national trends, the national average monthly occupancy rate sits at about 83.85% as of March. During times of economic crisis, it was not impacted by loss of income the same way other sectors were.

The high demand for self-storage brought in investors such as SRC Holdings, who opened Enterprise Self Storage in May. The project, announced in 2021, is part of a $100-million plan for real estate development and diversification. SRC declined to disclose the cost of building the self-storage facility and the occupancy rate of Enterprise.

Kim Bell, project manager for Enterprise, said SRC Holdings already owned the land the self-storage facility was built on. She said an important factor when creating a storage facility is its location.

“People tend to not want to drive more than 20 minutes to a storage unit,” Bell said. “They are going to rent from somewhere that’s on their daily drive, somewhere that’s convenient.”

Bell said Enterprise’s location brought in a few clients who were using different self-storage facilities but wanted something closer to store belongings like boats, motorbikes and other personal items they do not have the space to keep in their homes.

In October 2021, the Springfield News-Leader left its longtime 651 Boonville Ave. location and later moved to Hammons Tower in 2022. The 180,000-square-foot building that had housed the News-Leader for 88 years was sold to Devon Self Storage, owned by Illinois-based Inland Real Estate Group of Companies Inc., in August 2021. It has since been turned into approximately 1,500 self-storage units.

Drury Properties Inc.’s multilevel Sixty5 Self Storage, located along U.S. Highway 65, was under construction in 2019 and opened in early 2020. The climate-controlled facility has around 627 self-storage units, according to media reports. Neither storage facility responded to SBJ’s request for an interview.

The risk of oversupply
After years of consistent growth, Bell said she has seen a decline in demand for self-storage in the three years since SRC’s 2021 announcement of Enterprise.

“That boom has passed,” Bell said. “I think if you read things in the market, you’d see that the height in storage units was during that time. The high demand during the COVID episode – there were less options. Now they’re popping up everywhere. There’s less demand, and there’s more product.”

According to Yardi Matrix, a sector of the property-management software firm Yardi, 245 self-storage construction projects were abandoned, which is more than double from the previous year. SpareFoot noted the national average monthly rent for a unit was $84.96 as of May, falling from $116.48 two years ago.

Sherron said she’s also seen demand for self-storage fall since the opening of the facility two years ago. However, she said Keystone’s occupancy rate is at 72%, the highest it’s been since opening, but she attributed this to the season.

“For various reasons, people need more storage in the summertime,” Sherron said. “As much as I hate this, I would guess come wintertime, we’d probably be back down to 70%, maybe 68%. Hopefully, no lower than that.”

According to Inside Self-Storage, 98.2 million square feet of new storage came onto the market in 2023, with the risk of oversupply coming from many investors flooding the industry. Nationally, large owners coming into the sector created more competition, hiking up rates mom-and-pop self-storage businesses had usually kept stable. According to the industry publication, independent operators tend to care more about retention, while large owners care more about projected returns.

“I’ve worked for big corps and small corps,” Sherron said. “The thing I love about specifically storage in small corps is that you can treat humans like human beings, more so when it’s locally owned. It allows you to be more sympathetic. You can treat people as people.”

While large entities can raise prices for existing clients, local owners still maintain control of the sector, with 65% of facilities being owned by independent businesses, according to Inside Self-Storage. With SRC Holdings as a local investor in the sector, Bell said she isn’t worried about the fall in demand. She said people must be willing to treat self-storage like any other fluctuating industry, and not like an easy investment.

“People are always going to need storage facilities,” Bell said. “That’s not going to change. You hear all kinds of things, like storage units are easy money. I would not say that. It’s like any other typical business. You need to give your business time to grow, just like you’d need to give your units time to fill up. It’s not an overnight thing.”

Scott Gayer, owner of Sunshine Storage, Kansas Expwy Self Storage and Storage Zone in Springfield, also said that although there’s been a downtick, he isn’t worried.

“I don’t think it’s a concern,” he said. “I think we’ve just been spoiled with really, really high demand and low supply for a lot of years, and that’s just changed a little bit. That’s changed the business.”