The self-storage niche isn't as prone to location as some other asset classes, thanks to new on-demand services. On-demand self-storage includes pick-up and drop-off services for tenants, allowing operators to occupy facilities outside of the city where pricing is cheaper. Locations aren't merely miles outside of the city limits, but can be 45 minutes to an hour away. As a result, investors are beginning to look for locations in secondary markets where they can operate on-demand facilities at a fraction of the cost of properties in similar markets.

“We have stayed away from prime markets because the cash flow isn't as significant,” Hunter Thompson, founder of Cash Flow Connections, tells GlobeSt.com. “The markets that are 30 minutes outside of a city don't have as much of a differential as markets that are 50 minutes outside of the city, because the population density and the demand for the product isn't as significant.”

Investing in secondary locations has significant upside, but it also protects against rising costs of urban markets, where real estate could be used for higher and better asset classes. “We feel like we are protected, but there are a lot of major developers out there that were very bullish on the self-storage market in the late 90s and early 2000s and built self-storage facilities in these highly primed markets,” says Thomson.

Thompson used a self-storage facility at The Grove in Los Angeles as an example of the self-storage facilities occupying prime space in urban markets. “I am in Los Angeles, and there is self-storage facility right next to The Grove,” he explains. “That is some of the most highly desirable real estate in the city. I would imagine that that property is going to struggle with maintain prices as high as they are if there is an on-demand option that is comparable or less expensive.”

The self-storage property, like similar assets in urban infill locations, is surrounded by apartment buildings, but with on-demand services at the same price-point, it may not be enough to support a property that has to compete with on-demand operators outside of the city. “There is definitely demand,” says Thompson. “The interesting thing is that as millennials become more comfortable using apps for that type of product, I don't know why a person would prefer to move their own stuff into a facility as opposed to have someone come pick it up for them. The demand is there, but their stuff doesn't need to be in the same place.”

Instant Insights /

Why Self-Storage Investors Are Heading Outside the City

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