Since the start of the pandemic, the best bet in real estate has been that Americans need to store their extra stuff.
Self-storage stocks have been big winners since last year’s economic lockdown, overtaking e-commerce warehouses, rebounding malls and rental homes.
Investors emptied self-storage stocks when the pandemic hit, unaware that the locker rental business was about to flourish. Americans have emptied rooms and garages for home offices and gyms. Others packed apartments and made their way to Covid-19 cabins or their homes from campus. Companies fearing shortages have rented premises to store their inventory. Availability was decreasing and rents were skyrocketing.
As of February 21, 2020, just before the pandemic collapsed in the markets, self-storage stocks in the FTSE Nareit All Equity REITs Index have returned around 84% between price gains and dividend payouts. That compares to a return of around 20% on the larger Real Estate Investment Trust Index, which tracks the performance of 153 companies that own income-generating properties, from cell phone towers to woodlots.
Industrial properties, data centers and the McMansions also outperformed during the pandemic. But not as much as self-storage.
Additional storage space Inc.
stocks are twice as valuable as at the start of the pandemic, and public storage stocks returned 73%. The S&P 500 Index, to which the shares of both companies belong, generated a total return of approximately 43% during this period.
The position of market leader is a familiar position for these storage providers. Public Storage was the pioneer of self-storage, and as its bright orange signs became ubiquitous, its stock market value swelled to over $ 64 billion. A $ 1,000 investment in Extra Space stock in 2009, at the height of the real estate crisis, would be worth more than $ 60,000 today, including dividends.
Self-storage thrives in good times and in bad times. Marriage and household formation are good for business. Divorces too.
Investors large and small flocked to storage, and in 2019 a flood of new units threatened to exceed the rate at which Americans were racking up surplus goods. Another 5% of space was added nationwide in 2018 and 2019 and 3.8% was brought to market in 2020, according to Green Street, a real estate investment research firm that estimates that around 1 In 10 Americans use storage units.
The pandemic has helped fill the new space. The four largest storage companies each reported a record third quarter occupancy rate of over 95%. The additional space and public storage, with approximately 345 million square feet of space between them, were almost 97% full.
The average monthly US storage bill hit $ 155.65 in November, the highest in five years in credit and debit card data reviewed by analysts at KeyBanc Capital Markets. Rents aren’t rising as sharply as they did this summer, but they were higher in November, by more than 10% year on year for 10ft by 10ft space in many places, according to real estate data. Yardi Matrix company. The hottest markets for storage are the same as those for homes: Florida, Texas, Phoenix, and Atlanta.
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JPMorgan analysts Raymond James and Truist Securities recently reconsidered their earnings forecasts for storage companies and raised price targets for stocks. “Despite strong rate growth for new and existing customers, we hear of little change in customer behavior,” Raymond James’ Jonathan Hughes wrote to customers.
For many, it’s easier to pay a growing monthly bill than to figure out what to do with Grandma’s old dining set. The goods of non-payers are auctioned off on online sites such as storagetreasures.com and lockerfox.com. Big companies suspended auctions at the start of the pandemic, but they are back to free up space for non-payment.
Land & Buildings Investment Management LLC, a hedge fund that invests in real estate stocks, has a $ 41 million stake in Public Storage. “We have decided that self-storage is a great place in an inflationary environment,” said Founder and Chief Investment Officer Jonathan Litt.
The company says self-storage is a good hedge against inflation, as operating costs are paltry compared to properties like hotels, which require more staff and maintenance. Monthly leases offer more opportunities to increase rents than properties with multi-year contracts, such as malls and offices.
Rising construction costs have triggered a scramble for existing storage facilities. Green Street analysts do not expect supply growth to return to the 2020 rate until 2025. Large state-owned companies, especially Life Storage Inc.
have multiplied with acquisitions. Big investors buy too.
KKR & Co. has spent over $ 300 million on storage facilities in recent months and set up a business to operate them and add more. Roger Morales, who leads KKR’s commercial real estate acquisitions in the Americas, said the company is betting on increased demand from companies that stock inventory just in case, as well as people who have been deprived of pricing for larger houses and apartments by increasing house prices and residential rents but need more space.
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