BUSINESS

GETTING STUFFED

Will the U.S. real estate crisis put an end to the self-storage boom?

JASON KIRBY June 23 2008
BUSINESS

GETTING STUFFED

Will the U.S. real estate crisis put an end to the self-storage boom?

JASON KIRBY June 23 2008

GETTING STUFFED

BUSINESS

Will the U.S. real estate crisis put an end to the self-storage boom?

JASON KIRBY

For critics of America’s shopaholic culture, there’s no starker symbol of materialism run amok than the ubiquitous self-storage locker. Concrete and steel bunkers, crammed to the hilt with TVs, couches and other sundry accumulations, have sprung up on just about every spare patch of dirt in recent years. “We’ve had our home size in the U.S. go up 50 per cent in the last few decades, and yet we still don’t have enough space for all of our stuff,” bemoaned James Speth, the dean of Yale’s School of Environmental Studies, in a recent speech. When online news site AlterNet looked at the rise of self-storage last week, it was moved to ask: “What does it mean for the soul?”

That question may defy an answer, but for investors, self-storage companies have been nothing short of cash cows. The industry has exploded in recent years, becoming North America’s fastest-growing real estate segment and generating US$22 billion a year in revenue. So far this year, shares in several publicly traded self-storage companies have rocketed as much as 40 per cent. But even as critics wring their hands about their proliferation, there are signs the pack-rat boom has reached capacity. The question now, with a severe housing crisis and credit crunch taking their toll, is: how long can people hold on to all that stuff?

It may be hard for Canadians to grasp just how massive the self-storage industry has become in the U.S. In the span of a decade, the amount of storage space south of the border has more than doubled to 2.2 billion sq. feet—an area larger than the total land mass of Manhattan and San Francisco combined. Nearly 55,000 storage facilities line interstates, clutter industrial parks, and have taken root in suburbs. By some estimates, one in 10 U.S. households—or more than a million homeowners—now rent a locker. As one Washington state storage company advertises, they’re perfect for those suffering from “I might need it later syndrome.”

They also seem to be essential for people going through change. The increase in the

number of storage sites in recent years has been linked to things like rising divorce rates, the aging population, the propensity of Americans to pick up and move for work, and the large number of U.S. troops serving overseas. By one count, military personnel account for seven per cent of all locker rentals. Which is why investors have been so bullish on the sector lately—if there’s anything America is experiencing right now, it’s upheaval.

Consider the startling rise in home foreclosures. The number of people who have lost their houses in the U.S. recently topped one million. For many, there’s been little

choice but to move into a smaller house or apartment. Rather than part with their belongings, analysts say, some have turned to selfstorage. “We see storage demand remaining brisk as the industry benefits from continued moving activity, including that from rising foreclosures,” S&P Equity Research analyst Robert McMillan wrote in a recent report.

Yet many other analysts now admit there’s a limit to how much the industry can benefit from the housing crisis. In recent weeks, the share prices of self-storage companies have

dipped as investors realize cash-strapped consumers can afford to pay $110 a month to store their stuff for only so long. The fact is that while home foreclosures are on the rise, so too are storage locker foreclosures. When renters fail to keep up payments, the locks get changed and the contents go to auction. John Cordoza, a California auctioneer who specializes in selling off the contents of storage lockers, expects that to accelerate. “A lot of people who had four-bedroom houses are moving in with friends and relatives and putting their stuff in storage,” he says. “When the reality sets in that they’re not going to get another four-bedroom house, and they’re paying all this money for storage, they’ll probably just let it go.”

That may mean the end of the industry’s growth spurt, but operators are confident it’s not the end of the industry. In Michigan, which has been suffering through the auto sector slump for several years now, self-storage companies are still enjoying strong demand. Maurice Pogoda, who owns one of the state’s largest chains, says occupancy rates have slipped but are still running at around 85 per cent. “People have a lot of valuable things, and also a lot of junk that they’re connected to,” he says, “and it will take a lot before they’re willing to part with it.” M

PEOPLE WHO LOSE THEIR HOME SOON REALIZE THEY CAN’T KEEP STORING ALL THEIR STUFF