The Self-Storage Investment Niche Has Finally Reached Maturity, Here’s What You Need to Know, According to AJ Osborne

For more than a decade, investment in the self-storage market has boomed. As 2023, it’s a great time to look back. Speculation on this unique real estate investment niche has transformed since 2008 when the red tape was slashed. Institutions and accredited investors became viable.

Today, that gold rush is over, and the opportunity to secure serious returns over a short period has ended. Is it still worth considering self-storage as an area where you want to place your capital?

The answer is a strong yes, according to AJ Osborne, Founder of Cedar Creek Capital. But, he warned, the game’s rules have changed, and the future will be all about performance, competition, and survival of the fittest.

With two decades of experience, Osborne understands the industry better than most. He has become a well-respected self-storage investment expert and influencer committed to rolling out sensible, practical advice to investors to help them make informed decisions and secure the best possible ROI.

Summing up the development of the self-storage investment niche, Osborne sees the market as a child that has matured into a grown-up.

Growing Pains

Before 2008, self-storage was a child. From there, it was an adolescent until between 2018 and 2020. Still, right before our eyes, self-storage has transformed into an adult like its siblings: commercial real estate, retail, and multi-family,” says Osborne. “And that changes everything.”

Much like adult humans, understanding the niche’s maturation stages is paramount to developing insight into the adult. However, most investors don’t understand the history of the self-storage market or investment niche.

Before 2008, self-storage investment was fragmented. There was no major third-party management of institutional quality available. Because self-storage had never gone through a significant financial cycle, banks had no models to test the risk, so they hesitated to lend.

A Cycle of Freedom

But post-2008, all of those barriers were torn down. From there, self-storage went through a credit cycle; banks had models to analyze, and the performance was above and beyond all of its competitors. Institutional third-party management entered the scene with extra space in a way that had not existed prior. After seeing such performance, investor interest was at an all-time high, and they rushed into the market. Banks, scarred from real estate failures, looked at the low default rate of self-storage and became eager to invest. Private equity, looking to put capital into real estate, saw self-storage as the logical place to put it following the graveyard of the real estate market in 2008. Publicly traded companies were launched to invest in the freshly-liberated market.

This opened up capital floodgates,” explained Osborne. “Self-storage investment was the best performer in 2008, and everyone thought, ‘Wow, look at this! How do I get involved?’”

As the market for investment expanded, it became, at once, more standardized and more sophisticated. Tech companies built the tools that made investing easier, and private equity firms started lining up to get a piece of the action. Following 2008, development had come to a standstill. As housing had picked up and people that had not moved or lost their houses began to move, self-storage occupancy exploded. Immediately following, revenues exploded as self-storage operators could continually lift rates at double-digit paces. Investors in storage were primed for a tidal wave of superior returns.

“Demand for self-storage skyrocketed. There was an explosion of demand for units by customers, and occupancy rates kept increasing,” said the Cedar Creek Capital founder. “Institutional capital started to pour in, and performance was improving. Demand became so large that there was a developmental boom starting in 2015 to the present day that eclipsed any other development cycle in self-storage history to the tune of 3-4x annually.”

After 2018 and the coming crisis of Covid, this demand and fever to get on these returns spurred what AJ dubbed ‘the self-storage bubble,’ which continued unabated until the COVID-19 pandemic, with peaks of consolidation, capital investment, and value creation.

Into the Future

Now, demand from investors outpaces customer demand for units, rates have peaked, competition has grown, and many markets are over-supplied, which means that performance is beginning to lag for the first time since 2008. That means the opportunity to profit quickly on underperforming assets is less likely.

We are moving into a cycle where location and the quality of operators will matter in a big, big way,” shared Osborne. “The market is going to make you create value, and you have to be able to compete.”

This is the adulthood phase of self-storage. The market will give great returns when doing something. Losers and winners will be judged on quality and competition.

Reaching Maturity

Over the next five years, guilds will be formed,” predicted Osborne. “And we will see some people get great returns on their capital. But there will also be people who aren’t so successful as the market for self-storage investment matures.”

The market’s maturation does not bode well for those who don’t do their homework, and those who got lucky during the investment boom will likely be filtered out. However, for long-term investors, the shrink in ROI also means greater stability, predictability, peace of mind, and more passive income.

It won’t be just anybody who will become a big player. The performance will matter and dictate ongoing success. You can’t just own property and make money; it has to perform well in lower occupancy and less rate increase conditions, and the performance will come through operations. This is what the new phase is all about,” said Osborne.

With this new insight on the evolving market from Osborne, you can make more knowledgeable decisions on how best to engage with the fascinating self-storage investment space.

About AJ Osborne

AJ Osborne, CEO of Cedar Creek Capital, is the leading expert and voice in the self-storage industry with the No. 1 bestselling book and top-rated and listened-to self-storage podcast. He has been featured on top real estate podcasts and is the go-to resource for self-storage investment advice across social media platforms, including YouTube. Accredited investors can find more information here: https://www.cedarcreekwealth.com/


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