Article Written by Esther Fung, of the Wall Street Journal

Appeared in the July 7, 2021, print edition as 'Self-Storage Stages A Strong Rebound Quicker Than Other Sectors.'

Uncertainty about whether to stay put, move or just clear out the junk motivated new customers.

Self-storage pulled ahead of other property types in the reopening trade as the real-estate business rebounded this year during the easing of pandemic restrictions.

The storage facilities around the country have brought the biggest returns to investors in public real-estate stocks this year. Many people moved, and for those who stayed put, a desire to have more space in their homes because of remote learning and working also spurred demand for self-storage.

As of June 30, total returns from self-storage real-estate investment trusts reached 36%, outpacing other REIT sectors except shopping center and mall landlords. Over the same period, the FTSE Nareit Equity REITs Index gained 22% and the S&P 500 climbed 15%.

People generally haven’t been able to tame their consumerism, increasing the need for storage space. The self-storage industry sees demand when people’s lives are disrupted, such as relocating for a new job, marriage, divorce and education.

“Self-storage thrives when people experience change, and Covid disrupted norms across all generations, “ said Drew Dolan, principal at DXD Capital, a self-storage developer and investor. He added that many customers who needed self-storage in 2020 were first-time customers.

Operators moved quickly during the pandemic to offer customers more choices for reservation and move-ins, including online rental agreements and kiosks that limited contact with other people.

“What used to be a 45-minute transaction can now be a six-minute experience,” said Natalia N. Johnson, chief administrative officer of Public Storage, in a recent presentation to investors. In April, the Glendale, Calif,-based self-storage company known for its orange doors, acquired a portfolio of 48 properties for $1.8 billion in Washington, D.C., Virginia and Maryland. CubeSmart and Extra Space Storage Inc. added dozens of locations to their portfolios this year.

The recent increased demand has helped to absorb some of the excess storage space that was built in recent years. A 10-foot-by-10-foot, climate-controlled elevator access unit in Dallas that cost $210 a month in June 2020 was late last month going for $409, according data from Radius+, a news and analysis provider for the self-storage industry. While net rents in the self-storage industry climbed 56% last month from a year earlier, they were around 15% above the peak last seen in 2016.

“One question we ask ourselves is if self-storage carries practical risks of rents just being too high for consumer tastes,” Ki Bin Kim and Joab Dempsey, analysts at Truist Securities, wrote in a recent research note. “Our view is probably not, given that prices are up only around 15% over 2016 levels and as we faced five years of pricing-power declines in the sector due to new supply.”

As the pandemic eases, people are still considering changes, such as whether to return to cities.

“Usually purchasing storage when leaving an area is evidence that you plan to return,” said Elizabeth Gable, a partner at King & Spalding LLP. “It bodes really well for a city like New York City that experienced a lot of residential departures during the pandemic.”

By Esther Fung