Self-Storage REITs Gear Up for Growth

The small club of publicly traded self-storage REITS, which outperformed other REIT sectors in 2021, is about to get larger.

SmartStop Self Storage REIT, a self-managed, privately traded trust, has filed with the SEC to form Strategic Storage Trust VI and launch a $1 billion initial public offering. SmartStop, which operates facilities in 18 states and Toronto, will use the funding to mount a major expansion in the red-hot self-storage market.

SmartStop CEO Michael Schwartz told Bloomberg that the company has had record occupancy in the past year and is actively pursuing acquisitions with a full pipeline of possibilities. The REIT’s portfolio includes 166 facilities comprising nearly 13 million rentable SF. Headquartered in Ladera Ranch, CA, SmartStop has approximately $1.7 billion of real estate assets under its management.

According to Nareit data, self-storage REITs achieved a return of nearly 60 percent in 2021, the highest among all REIT sectors.

The rise of remote work during the pandemic led to an increase in the migration of millennials seeking more affordable locations with a higher quality of life. This in turn created new demand for self-storage space in markets across the US. The national average for 10-foot x 10-foot climate-controlled unit rental rates increased by nearly 10 percent last year, with markets in the Sun Belt reporting year-over-year increases as high as 15 percent.

The five self-storage REITs all performed at or near record levels in 2021, with double digit same-store revenue growth. Public Storage, the largest self-storage operator, saw revenues increase by 14 percent in Q3 2021. Two other REITs, Extra Storage Space and National Storage Affiliates, saw revenue jump by nearly 19 percent for the same period; CubeSmart and Life Storage also performed well.

Analysts note that surge for self-storage REITs came after a lackluster showing before the pandemic, when vacancy rates were high and rents were sagging, so a certain amount of the growth in the sector is making up lost ground.

Public Storage is in the midst of a $2.3-billion expansion. In 2021, the REIT opened six new facilities with 1.6 million square feet of space.

“Public Storage achieved significant portfolio growth, industry-leading transformation of the customer experience, and record financial results in 2021,” said Joe Russell, Public Storage President and CEO, in a statement.

“Our momentum continues with high-growth properties in our non-same store pool comprising 25 percent of the portfolio, and broad opportunity for continued growth across our acquisition, development, redevelopment, and third-party management platforms. We are well-positioned for continued strength in 2022,” Russell added.