The self-storage and multifamily markets are interconnected. They are both driven by demand for multifamily and shrinking home sizes in cities, and investors in both asset classes follow a similar set of metrics, from employment to income growth, to determine a profitable submarket.

“I think that the metrics that drive demand for multifamily are very similar to the metrics that drive the profitability of the self-storage market,” Hunter Thompson, CEO of Cash Flow Connections, tells GlobeSt.com. “For example, we are looking for population growth; we are looking for income growth; we are looking for a diversified amount of employers; and we are looking for stability in the economy from a big picture.”

While the metrics are similar, Thompson doesn't pay much attention to the specific market activity, however. He says that trends in multifamily do not necessarily carry over to the self-storage industry. “Going down to the nitty-gritty, when you look at the differential between B-class apartments and nearby single-family houses, that is not something that we pay close attention to,” says Thompson. “That would be industry-specific, in my opinion.”

Likewise, strong fundamentals in the self-storage market don't encourage Thompson to invest in multifamily. He has invested in multifamily in the past, but believes that self-storage offers better risk-adjusted returns. “It is very challenging to find risk-adjusted returns in that sector because it is so competitive,” explains Thompson. “One of the advantages of self-storage is that the purchase prices typically aren't high enough to attract major institutional players, and the asset class isn't as sexy as some of the other multifamily assets out there. I see the differential in the ability to achieve the returns that we are looking for by staying away from certain asset classes, most notably multifamily. It is just too challenging and one of the reasons that it is challenges is that everyone is hip to the fact that buying houses is not going to be as popular going forward.”

In self-storage, Thompson is also finding great opportunities in Mid-West markets, where home ownership is more prevalent than in large cities. “Millennials want to buy homes, but in these highly prime markets, it is challenging. I think that people still want to own things,” says Thompson. “The middle of America, which mostly where we invest, is still a massively consumer economy and one that is subject to using self-storage product in the future.”

Instant Insights /

The Same Metrics Drive Multifamily and Self-Storage

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