Companies such as Public Storage of Glendale, California; Salt Lake City-based Extra Space; and CubeSmart, of Wayne, Pennsylvania, rent storage space by the month. The facilities can range from basic 5-foot-by-5-foot (1.5-meter-by-1.5-meter) units to climate-controlled rooms of 25 feet by 25 feet where people can stash goods such as furniture, tools and skis, a salesperson can store product samples, or a small business can keep items as in a mini-warehouse. Demand tends to be driven by life changes, which often entail moving, such as college graduation, job changes, divorce or death.
Cleaning Out
"If you get married, you don't necessarily throw your couch away, you don't necessarily throw away the buffalo head, what have you," said Clemente Teng, vice president of investor relations for Public Storage. "You put it in storage."
Public Storage has about 1 million tenants at any given point in time, with the average lease of existing tenants running about 36 months, Teng said. More than half its tenants have rented their units for more than one year, he said.
"People always think, 'I'll just house it for a couple of months and then get it all out, but the problem is once you get all your stuff in, the last thing you want to do is spend a Saturday cleaning it out," Teng said.
Rents Rise
Occupancy and rents in the storage business probably will increase over the coming year amid rising demand and virtually no new construction, said Chris Sonne, executive managing director of the self-storage industry group at Cushman & Wakefield Inc. The commercial real estate services firm expects occupancy will increase by 1 to 3 percentage points and rents will rise 3 to 3.5 percent, said Sonne, whose group conducts a quarterly survey of about 7,000 facilities in the 50 largest metropolitan areas.
"Physical occupancy is inching back up so they're able to really raise rents," Sonne said.
Median occupancy rose to 81.1 percent in the first quarter from 80 percent a year earlier. The median asking rent for a unit of 10 feet by 10 feet at ground level and not climate- controlled climbed to $90 a month in the first quarter from $88 a year earlier, according to Cushman & Wakefield. Public REITs saw stronger rent growth because their revenue-management tools enable them to increase rents to match demand, said Sonne.
'Not Cheap'
Public Storage, with a market value of $26 billion, accounts for 81 percent of the BBREIT Public/Self Storage Index. Its shares closed at $145.04 yesterday, for a dividend yield of 3 percent. The company operates in 38 states, with California accounting for about 25 percent of revenue.
"It's not a cheap stock," Knott said. "It should be an outperformer over a long time period, but over the next three, six or nine months, it's hard to say it's going to outperform."