Storing up Treasures

“Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal.” – Matthew 6:19

Actually, most people do store up their treasures on Earth, so much so in fact, that quite a few people are filling up their own treasure chests by renting out storage space.

Self-Storage is an industry in which storage space is rented out to tenants, usually on a monthly basis. The storage space is usually in the form of a room, container or locker. Access to the space is usually secured by the tenant’s own lock and key.  Clients include individuals, who usually store household goods, as well as businesses, which use the facilities for storing inventory or archives. As of 2009, there was approximately 2.3 billion square feet of rentable storage space in the US.

The first modern self-storage facilities appeared in the US in the 1960s. The self-storage business was meant to provide individuals with space to deal with “life events”: moving, marriage, divorce etc. American workers have always been quite mobile, and the end of the 20th century, with its increasing divorce rates, and rush of transitions to 2nd or 3rd homes, saw a significant increase in the number of life events.  However, by the end of the 1990s, demand was growing at a faster rate than explained by these factors.  From 2000 to 2005, the number of self-storage facilities almost doubled, with 3000 new facilities built each year. Since the 1990s, demand was increasingly driven by the accumulation of goods, fuelled in part by increasing real disposable  income. Individuals accumulated durables that did not rot or rust, and contrary to the mainstream economic assumption of “free disposal”, they preferred to pay to store the things they did not need, rather than throwing them away. Storing things “temporarily” was considered thrifty. Once stored, a sort of “psycho-financial inertia” took over; if individuals felt they could afford to pay for the storage of stuff, then human laziness would ensure that stuff intended to be stored temporarily would remain in storage for extended periods. By 2007, 50% of the renters were simply storing what wouldn’t fit in their homes, 15% of the them claimed that they were storing items they “no longer need or want”.

The financial crisis significantly reduced this non-economic usage of storage facilities as customers were forced to cut their expenses. The number of customers renting the most popular medium sized units decreased, as these customers either left or downsized to smaller units. However, there was an increased demand for larger units, by customers wishing to store the contents of foreclosed properties. Businesses forced to shut down also used the facilities for temporarily storing physical assets.

Occupancy rates fell by 2% to 3% from 2008 to 2009, from 91% to around 88%, and some businesses were forced to cut prices and offer promotion schemes to maintain demand. As of 2009, around 80% of facilities were offering free rent for a month or more to attract cash strapped customers. However, beyond that, self-storage firms proved remarkably resistant to the recession. Structured as Real Estate Investment Trusts (RIETs), which pool cash and invest in property, self-storage firms invest mostly in commercial property. Property values fell during the recession, but profits and cash flows remained stable or have grown since then.  In February 2011, 73% of self-storage owners reported revenues as stable or growing from the previous year. The success of the industry is also reflected in the market performance of publicly traded self-storage firms like Public Storage, Extra Space and Sovran, which were up between 30% to 140% since August 2007.

As a business, self-storage takes advantage of the high recession-resistant long-term demand. Self-storage firms can afford to rent out space on a monthly basis, knowing that, while contracts are short-term, the usage of the storage space is not. According to big yellow, a UK firm, 37% of their storage space is occupied by the tenants who have been using the space for over 3 years. The high demand also means that finding new tenants for an empty space is usually not a problem, so the contracts do not require any prior notice from the tenant while vacating the unit. Security deposits are also not required. Damage to the storage unit is unlikely. Self-storage firms can also recover losses due to non-paying tenants by auctioning the contents of their storage units when lien is imposed for non-payment. This depends on the relevant lien laws in the jurisdiction. In the US, this practice is common enough that it has given rise to two reality T.V. shows, Storage Wars and Auction Hunters, on lien auctions at self-storage facilities.

Self Storage (2006 data)

Number of  Facilities Rentable Area (sq. feet)
USA

41000

1.6 billion

Australia

1000

22 million

UK

700

20 million

The self-storage industry is based primarily in the US. Of the 58,000 storage facilities as of 2009, 46,000 were located in the US. However, the industry is growing in other countries as well. The number of facilities in UK grew by over 8% last year. Increasing income levels in emerging economies has also prompted development of self-storage facilities in places like Shanghai and Delhi.

In Delhi, Noida based StoreMore has launched a mail-storage service. Mail storage is a type of self-storage in which customers can mail-in the items they wish to store in boxes provided by the company. Most mail-storage services, including StoreMore, allow customers to call or order the boxes online. The boxes are delivered free of charge, and once filled, are collected free-of-charge by the company. Customers pay a monthly fee per box for storage; in case of StoreMore this is Rs 60 per cubic-foot-sized box. When a customer wishes to retrieve his box, he can order the box online or over phone. The presence of such a service in a relatively thrifty country like India is indicative of the universal appeal of self-storage, at least amongst those who can afford it. As a recent Economist article pointed out, investing one’s treasures in a self-storage facility might just be more lucrative then storing them inside one…

– by Anubhav Bhattacharjee

Note: Lien is imposed when a creditor obtains the right to sell the mortgaged or collateral property of those who fail to meet the obligations of a loan contract. In case of self-storage, the property stored in the unit serves as the collateral for the contractual payment obligation of the renter.

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