The State of Self-Storage Investing in Texas in 2020 - CXRE Commercial

If you rent or have ever rented a self-storage unit, you have Texans Russ Williams and his stepson Bob Munn to thank. In 1964, the pair constructed the first modern self-storage facility in Odessa, Texas. Of course, there were storage facilities before 1964, but Williams and Munn revolutionized the industry. . The pair added garage-style doors, allowing easier access for clients. You might say the Lone Star State is the home of modern self-storage.

The Rise of Self-Storage Investing

In the 1960s, Americans enjoyed unparalleled income growth. Therefore, consumerism increased nationwide, leading to more possessions in each household. 

Enter the self-storage unit.

As more and more homes amassed possessions, they struggled to find places for everything they owned. As a result, self-storage investing became increasingly popular as well.

Throughout the decades, self-storage has shown steady returns for investors. Even during the 2008 economic recession, this sector saw positive returns. Self-storage real estate investment trusts (REITs) were the only asset class that experienced growth during that time.

However, as more markets saw investors building storage units, the supply began to outpace demand. Therefore, some markets have started to soften in recent years. 

Still, this sector remains a wise investment opportunity, even heading into 2020 and a global pandemic.

Throughout the decades, self-storage has shown steady returns for investors.

Self-Storage Market Trends in 2020Texas

Since Williams and Munn constructed their first facility over 50 years ago, the self-storage industry has grown immensely. Currently, the United States has over 2.3B SF of rentable self-storage space spread throughout more than 60,000  storage facilities. This commercial real estate sector is a multi-billion dollar industry, producing $38.6B in revenue in 2019 alone.. Self-storage investing has long been considered a “recession-proof” sector. The year 2020 definitely put that belief to the test. However, even though the economy slowed thanks to COVID-19, self-storage saw relatively stable returns. 

Storage Units During the Pandemic 

Compared to other commercial real estate sectors, self-storage investing remains stronger than most. REITs that specialize in self-storage fell about 11% during the first quarter of 2020. Meanwhile, the Dow Jones Industrial Average fell 16.96% and hotels fell a staggering 53.69% during that same period.

However, what once was considered a recession-proof commercial real estate sector is seeing some hiccups due to the Coronavirus pandemic. According to a New York Times article, falling profit margins are the result of overexpansion, increasing competition, and the pandemic.

In June 2020, three months after the pandemic shut down much of the nation, the average rent for a 10×10 climate-controlled unit decreased 4.3% nationwide. Units without climate control fared worse, declining 6.7% year over year. 

As businesses consolidate, residents downsize, and e-commerce increases in popularity, experts predict the self-storage market will rebound quickly

SELF-STORAGE INVESTING

Self-storage facilities remain a solid investment for your commercial real estate portfolio.

When compared to some other real estate investments (like office buildings or retail properties), self-storage properties require much less attention and upkeep. In addition, more than 9%  of Self Storage Investing in Texas American households rent a self-storage unit. And each month, they spend about $90 on rent for those storage units. 

In general, if you choose a good property, self-storage facilities can be profitable investments. However, investors should take caution, because self-storage facilities can also be money pits. 

If you are pursuing Houston self-storage commercial real estate investment opportunities, it’s important to follow market trends, understand the local area, and consult experts who can help you make the best decisions.  Self-Storage Market Trends

If you’re considering self-storage investing, consider the following trends: 

Growth

Before the pandemic, Industry insiders predicted that the self-storage industry will continue to grow exponentially. In 2019, market leaders estimated the  $38B industry would grow to $49.24B, by 2024.

Now, with the pandemic continuing to impact every part of the commercial real estate economy, that number could be lower. However, the economic slowdown also means a slowdown in construction. Therefore, new storage facilities will be fewer and farther between, meaning existing storage facilities are more likely to turn profits.

Increasing Modernization

In 2020, as many businesses downsize or close due to COVID-19, they will need more space to store property and items related to business.

Unlike the simple garage-door units that most people think of, 21st-century self-storage embraces all sorts of technologies. For example, mobile reservation systems and increased automation allow renters to quickly and easily rent units, moving supplies, and moving trucks. Furthermore, these days renters expect certain features like climate-controlled units, camera surveillance, and keypad entry.

These advancing technologies are increasingly important during the pandemic. National and local health and safety regulations continue to require businesses to maintain social distancing and avoid personal contact when possible. Therefore, self-storage units with keyless entry, mobile-friendly communication, and other technologies are more likely to see an increase in renters.

Visual Appeal

Unlike the cinder-block buildings of the past, many new facilities have updated aesthetics (like granite countertops in reception areas) for a great visual appeal. These ‘3rd-generation’ facilities seek to improve renters’ experience and make people feel at home.

Investing in visual upgrades can also help increase your overall returns.

Building Conversions

Instead of constructing brand new buildings, some self-storage investors are choosing to repurpose older, unused structures for self-storage. This is something to consider when investing, especially in an urban area.

Additionally, consider purchasing under-utilized properties at least three miles from other storage facilities. These locations will be less expensive than building a new facility and can breathe new life into a run-down property.

Self Storage Investing in Texas

Houston Self-Storage Commercial Real Estate Investment Opportunities

Even amid uncertain economic times, there are plenty of opportunities to invest in self-storage in Houston. The greater Houston metro area has over six million residents. Many of these residents already have or may soon need self-storage. On top of that, Houston is a big city for business. And businesses are one of the biggest self-storage customers.

In 2020, as many businesses downsize or close due to COVID-19, they will need more space to store property and items related to business. Furthermore, many businesses are shifting to an e-commerce model, creating a need for inventory storage

In addition, Houston will continue to add both new residents and new businesses in the next decade. This translates into greater demand for self-storage.

To help you find the best Houston self-storage commercial real estate investment opportunities, here are a few things to keep in mind:

  • Local Demographics – No matter where you invest, the location must have enough people with enough disposable income to afford self-storage. Specifically, the area needs adequate population density, traffic count, and a high enough median household income.
  • The Facility’s Condition – If purchasing a used property, you may need to do upgrades. Some simple projects could be repairing broken doors. However, if the facility doesn’t have up-to-date technologies and systems, you may face a significant investment to modernize it.

  • Your Competition – Before purchasing a Houston self-storage facility, scope out the local competition. Find out who your competition is, how facilities are in the area, and how many units these facilities have.

Investing in Houston Self-Storage

As the home of modern self-storage, the Lone Star State has many opportunities for commercial real estate investors. Texas saw the largest population growth of any American state in 2019, with some 367,000 people moving to our state. Cities near Houston saw unprecedented growth since 2010. All that new growth makes Texas an ideal market for self-storage investments.

If you have considered self-storage investing Texas represents an incredibly lucrative market. Our expert brokers are knowledgeable about markets throughout the state. Therefore, we can help you identify the best investment for your portfolio.

To learn more about investing in Houston self-storage, contact CXRE today. We know the Houston submarkets and can help you make a solid investment.

Share This

CXRE » Commercial Real Estate Investment » The State of Self-Storage Investing in Texas in 2020