How to Value: Self-Storage Warehouses

Industry Description

The Self-Storage Units and Mini warehouses industry in the U.S. contain establishments primarily engaged in renting or leasing space for self-storage (NAICS 531130). These establishments provide secure space where customers can store and retrieve their belongings at their convenience, including rooms, compartments, lockers, containers, and outdoor space.

The following are some basic characteristics of the Self-Storage industry:

  • Self-Storage industry has a combined revenue of $23.2 billion, with a growth rate of 0.6% in 2021-2026
  • There are approximately 174,000 businesses as of 2021
  • The Self-Storage industry employs approximately 211,000 people

Not included in the scope of this analysis is General Warehousing and Storage (NAICS 493110).

Industry Trends

The Self-Storage industry is in the mature phase of its life cycle and is highly fragmented. In 2021, the top three industry companies collectively account for  approximately 22% of total industry revenue. Operators range from small independently run organizations with few facilities, to major corporations with more than 500 locations and franchise opportunities. Some key factors influencing this industry are (i) recession-resistant residential and commercial demand, (ii) increasing barriers for new operator entry and (iii) technical innovation contributing to operational efficiency. Each of these is described in further detail below.

Since the emergence of the industry in the 1960s, the self-storage industry has had one of the highest profit margins and return-on-investments in real-estate, outpacing office, residential, retail and residential properties. The combination of low overhead costs, limited staff, few utilities and low maintenance costs contribute to substantial profitability.

In addition, demand for residential and commercial storage is relatively consistent despite economic conditions, making it a recession-resistant industry. According to a market survey conducted in 2014 by SpareFoot, 68% of customers use storage facilities while changing residence, and 32% store excess items or items requiring a controlled environment. To break this 68% of residential migrants down further, the occupancy is driven by significant life events such as job relocation (26%), downsizing (19%), college (8%), divorce (7%), and military (2%).  The need for commercial storage is exacerbated during a recession (such as the COVID-19 pandemic). Businesses require storage when downsizing offices or abandoning them altogether to reduce retail space costs.

According to U.S. Census Bureau data, there have been a boom in self-storage construction spending and development since 2014 but has stabilized in the last three years. Despite high service demand, such as over 90% occupancy rates in major population centers, some operators are hesitant to invest in building new facilities. This is likely due to tight credit conditions and higher land costs.  Overall, the barrier to entering the self-storage industry is moderate but increasing across the US. It varies significantly across state and city due to availability and costs to purchase/ lease land, property taxes, and regulatory requirements for zoning and land development conditions. Once initial barriers are overcome, operational costs are generally low. As a result, the landscape is fertile for small businesses; however, there is debate amongst industry experts whether the market is oversaturated.

Recent innovation by self-storage operators is the use of mobile and online digitalization tools. The use of a mobile application and online services to provide 24/7 self-service access and management of a unit and renewing leases, gives superior customer experience. In addition, automated operational efficacy reduces the required facility personnel and managers. These technological investments have given operators a competitive advantage in customer acquisition, retention and profitability.

Key Performance Metrics

In evaluating the Self-Storage industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.

  • Occupancy Rates, by unit, square foot, and reservations
  • Revenue per Square Foot
  • Average length of stay
  • Residential vs Commercial renters
  • Average Tenant Rate, by unit type
  • Number of Days Vacant, by unit type
  • Online Factor, aim 60-80% of business generated from online traffic

Industry Organizations & Publications

The following organizations publish useful information:

  • StorageCafe
  • SpareFoot Storage Beat
  • Self-Storage Association (SSA)
  • Argus Self Storage Sales Network

Guideline Information: Private Purchase Transactions

Most self-storage facilities are privately owned and there is considerable M&A activity in this industry. Data regarding the sale of 100% of closely held self-storage facilities is generally the best source of information to appraise a subject company. The following are typical appraisal multiples from sale of self-storage facilities:

  • Revenue multiples between 1.0 and 8.0 times
  • Gross Profit multiples between 1.4 and 11.4 times
  • EBITDA multiples between 3.3 and 23.3 times

In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.   

Guideline Information: Publicly Traded Companies

Most Self-Storage operators are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.  

The five largest publicly traded U.S Self-Storage operators, which include leasing or renting mini warehousing and self-storage units, ranked by market capitalization are:

  • Public Storage (NYSE: PSA) – $52.0 billion market capitalization
  • Extra Space Storage (NYSE: EXR) -$23.1 billion market capitalization
  • Life Storage, Inc. (NYSE: LSI) – $9.45 billion market capitalization
  • CubeSmart (NYSE: CUBE) – $$9.2 billion market capitalization
  • AMERCO (NASD: UHAL) – $10.2 billion market capitalization

The Price-to-Earnings (P/E) ratios of these five companies range between 9.05 times to 37.5 times.

Appraisal Rules of Thumb

Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.

Self-Storage facilities are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.