Why self storage is so profitable

The scale gap with Europe is the whole story in one number. 300 million Americans use 50,000 facilities and 2 billion square feet of extra storage. 750 million Europeans use 5,000 facilities and 120 million square feet. Per person, that is not a small difference in habit — it is a different relationship with owning things.

The industry's own framework is the Five D's. Death — a neutral place to put a relative's possessions when deciding is too painful. Downsizing — the most common driver, and it applies to businesses clearing offices and inventory too. Divorce — one household's possessions becoming two, in a country where nearly 50% of marriages end. Dislocation — foreclosure, hurricanes, fires, and military posting; 2% of all US units are rented by service members. Decluttering — a home that now has to be an office as well.

But the Five D's describe triggers, not the trend. They imply a business that advertises at the divorced and the bereaved. What actually fills two billion square feet is that Americans cannot get to the space they were promised.

Home prices have outrun income since 1965. 83% of Americans now live in urban areas against 21% in the 1950s, when most lived in suburban homes with garages and yards. Industries cluster — tech to San Francisco, finance to New York, entertainment to Los Angeles, politics to DC — so leaving the city costs a less-established worker earnings and opportunity.

And Americans have stopped moving. Between 2018 and 2019, with the economy strong, fewer than 10% moved home — the lowest domestic mobility recorded since the 1940s. People stay in urban apartments they have outgrown, add roommates when rent rises, and rent the difference by the month.

That is why the priciest storage markets are the priciest cities. Los Angeles, New York, San Francisco, Chicago, Seattle and Miami consistently top both demand and rental rate.

On the supply side, it is the cheapest building anyone constructs. $35 to $100 per square foot single-storey, $50 to $200 multi-storey — against $200 to $800 for an apartment building, which needs bathrooms, insulation, HVAC, windows, tiles, stairs, elevators and fire escapes. Storage needs concrete, corrugated steel doors and fluorescent light.

Location barely matters, which is the unusual part. Storage is a pull business — customers travel to it for more space — so the rule of thumb is land within a 3 to 5 mile radius of a major city, not inside it. That land is cheap precisely because retail is dying and offices want to be downtown, so it was otherwise languishing.

Operationally there is almost nothing to do. Tenants bring their own lock, load their own possessions, and empty the unit themselves. Nothing can be damaged and nothing needs repainting — it is all concrete. If rent goes unpaid the operator auctions the contents and re-rents the box. One person can run a facility.

And nobody leaves. The average American rents a single unit for 30 to 40 months. Storage sells itself as flexible month-to-month space and is used as set-and-forget.

Despite all that, the industry is barely consolidated. Over half of the 50,000 US facilities are run by individual owner-operators. The five public companies — Public Storage, Extra Space, CubeSmart, National Storage Affiliates and Life Storage — own just 19% between them.

Public Storage leads with a share that shows how fragmented it is. It owns 9% of American storage space and about 2,800 facilities, which is 6% of the facility count. Revenue grew about 6% a year for thirteen years, from $1.68B in 2008 to $3.4B in 2021.

Rent is effectively the whole business. Rental income has been 94% of the top line for a decade. The cross-sell — boxes, bubble wrap, mattress bags, and the Orange Door insurance program covering flood, fire, vermin and burglary — has never got past 6%.

The company cannot raise prices, so it cut costs instead. Revenue per facility went from $840,000 in 2008 to $1.226M in 2021, which is 38% — exactly inflation, since a 2008 dollar is worth $1.38. Operating cost per facility rose only 20%, from $260,000 to $310,000, and direct operating costs hit a record low 27% of revenue. Half of customers now rent online, so staffing follows demand rather than a 9-to-5, and kiosks put a remote agent on a screen.

The biggest expense is the government. Property taxes are 45% of annual operating cost — more than labor, repairs and marketing combined — at about $117,000 per facility. Against that, a site manager costs $50,000, repairs $23,000 and advertising $17,000. Each facility nets $958,000.

And the market-level margins are software-like. Occupancy runs 96%. Los Angeles grosses $417M across 213 facilities at 83% NOI margin, San Francisco at 92%, Seattle 79%, Miami 77%, New York 72%. When private operators overbuilt into a 2019 oversupply and gave up after COVID, Public Storage spent $5 billion on 230 facilities — buying at $234 a square foot what it usually builds at $130, because it was ready and they were done.