For an industry that emerged from nowhere with no inherent allure, no collective marketing savvy, and no tangible product to take home, the self-storage rental industry has piled up impressive numbers.
Fifty thousand storage facilities now dot the American landscape, most of them austere, nearly windowless buildings wedged into commercial strips and industrial zones. That means the industry boasts more domestic locations than McDonald’s, Subway and Jack in the Box combined.
With each storage yard containing, on average, 500 rental compartments, there are literally millions of garage-like vaults in which to store old clothing and other items, said R. Christian Sonne, a self-storage specialist at Cushman & Wakefield Western, an Irvine, Calif., financial services firm. The combined square footage of those units is three times the size of Manhattan, by one calculation. Every man, woman and child in the United States could stand inside those spaces all at once, industry officials like to say.
And still do jumping jacks.
“It’s way bigger than people think,” Rachel Greenfield, marketing manager for a storage-related company, said of the industry, which barely existed in the 1960’s and began a span of steady growth in the 1970’s. A tipping point occurred near the end of the century, when the concept more than took off, she said. “It blew up.”
By then, Wall Street had discovered the sector. Infusions of cash created what one expert calls a “super-fragmented” playing field in which tens of thousands of relatively minor storage operators, including more than 27,000 stand-alone “mom and pops,” compete against a handful of goliaths that control hundreds of locations apiece.
Most new construction ended during the recession, and many operators suffered, but overall the industry held up well compared with the retail and office sectors, Sonne said. Occupancy rates and income are rising again. The industry takes in $22 billion annually, twice what Americans spent last year buying movie tickets.
Such success makes self-storage one of the remarkable stories of American commerce. Even those in the industry are amazed, especially since the first storage yards were almost afterthoughts, an attempt to squeeze a few dollars from land next to freeways or on the outskirts of town. Or land awaiting later development into hospitals or retail centers.
Storage has always battled a perception problem: That it is illogical to pay to keep something you already own, and perhaps even pay more in rent than the merchandise is worth.
What no one fully appreciated was how useful temporary storage would become in a highly transient society.
“This is an event-driven business,” said Lance Watkins, founder and CEO of Storage Outlet, a chain with 15 locations in California. Those important events often involve what he calls the “three Ds”: divorce, debt problems and death.
People move. They upsize, they downsize, they combine households. They clean out the homes and apartments of deceased loved ones. They expand a business and need a place for extra inventory. “You come home and a water pipe broke and your house is flooded,” Watkins said. “You need a storage unit to put your stuff in.”
And America, it turns out, is a demonstrably materialistic society. People cling to photo albums and school yearbooks. They hang onto objects they might have difficulty replacing, or things that “might be valuable someday,” whether or not they still fit into closets and garages.
Despite the favorable fundamentals, many insiders believe the industry is entering a painful period of consolidation and upheaval, much like what the airline and hospitality industries have gone through. In part, it’s because of the sheer financial might of big firms such as Glendale, Calif.-based Public Storage, the industry leader, which operates more than 2,000 facilities nationwide.
As part of a real-estate investment trust, Public Storage has access to capital at rates far lower than smaller operators can get, industry experts say. Four of the nation’s top five firms, representing some 3,800 storage yards, are held by similar trusts strongly positioned to gobble up smaller competitors.
So far, due to the overall strength of the industry, relatively few smaller firms have put themselves on the sales block, but financial pressures are escalating as the heretofore low-tech industry adapts to the Internet age, industry experts say.
Watkins says self-storage has lagged far behind other types of business in how it promotes its product. Until recently, most operators relied heavily on street visibility and Yellow Pages ads.
“The only decision you made in marketing was, ‘Am I in this phone book or that phone book?’ ” Watkins said. “‘Do I put a guy out there with … an arrow sign?’ That was it. That’s how sophisticated our industry was.”
Now, though, “We’ve really become marketing companies,” he said, because so many people look for storage units and promotional deals on the Web, typically via Google searches.