GVP Insights: The Resilience of Self-Storage

In this edition of GVP Insights, we're highlighting self-storage, an asset class known for steady performance and resilience through economic cycles. Gelt Venture Partners entered the self-storage industry in 2018. Under the leadership of Kartikeya Kejriwal “KK”, we've successfully acquired 11 self-storage assets, providing investors diversified and recession-resistant investments.

With self-storage part of our investment strategy, we figured it would be relevant to share insights on why this property type consistently thrives, even in uncertain markets, and how we strategically pinpoint prime investment opportunities.

Now, let's dive in…

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‍Self-Storage: Proven Resilience

Historically, self-storage has outperformed during economic downturns:

• 2008 Financial Crisis: While other real estate sectors faced substantial losses, self-storage REITs achieved positive returns of over +5%.
• COVID-19 Pandemic: Lifestyle shifts such as remote work and relocation led to record occupancy levels (~96.5% nationally in 2021).

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‍Why is Self-Storage So Resilient?

• Consistent Demand: Life events like downsizing, relocation, divorce, or business expansion maintain steady demand regardless of broader economic conditions.
• Low Operating Costs: Lower maintenance requirements and minimal tenant turnover expenses compared to other property types ensure stable and robust cash flow.
• Flexible Lease Terms: Month-to-month leases allow for swift rent adjustments in response to inflation or shifting market dynamics, preserving cash flows.

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‍Measuring Market Opportunity: Square Footage Per Capita

At GVP, a critical metric guiding our investment decisions is the self-storage space per capita. Nationally, the average is roughly 7 to 8 sq. ft. per person, totaling over 2.1 billion rentable sq. ft. nationwide.

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Oversupplied Markets (Above 10 sq. ft. per capita):

These markets typically face rent pressures and increased competition:

• Fayetteville, NC: ~11.7 sq. ft./person (Rents down ~13% YoY).
• Jacksonville, FL: 10.4 sq. ft./person, new developments equal to 18% of existing inventory.
• Heber, UT: Exceptionally high at ~29 sq. ft./person.

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Undersupplied Markets (Below 6 sq. ft./person):

High barriers to entry create exceptional investment opportunities:

• Providence, RI: 4.7 sq. ft./person
• Los Angeles, CA: Approximately 4–5 sq. ft./person.
• New York City: Around 3–4 sq. ft./person.
• Detroit, MI: Just 1.2 sq. ft./person, driving rent increases due to high demand.
• San Francisco/East Bay, CA: About 2–3 sq. ft./person, signaling substantial unmet demand.

These markets offer potential for higher occupancies, stronger rental growth, and more stable returns.

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Investment Outlook: Positive and Steady

The self-storage sector has proven its resilience through uncertain times, from the Great Recession to the pandemic, by maintaining high occupancies, steady rents, and low overhead. Today, the sector is normalizing from its pandemic boom - higher interest rates have slowed housing transactions and moving activity, thereby leading to temporarily lower demand for the product. However, new supply has also moderated and demand for self-storage is expected to pick up alongside housing activity in the coming years. A confluence of lower valuation multiples and reduced moving activity present an opportunity to buy well located properties at a discount to historically traded values.  While off its peak, we are beginning to see renewed interest in the sector, driven in part by information asymmetry and the ability to drive outsized returns from stabilizing substantially undermanaged properties. Large pools of institutional capital have been earmarked for deployment in the storage sector after a lull in the wider commercial real estate markets due to steep interest rate hikes in recent years.

All these factors are expected to serve as tail winds for the asset class going forward. That said, our storage investments are primarily based on quantified upside from stabilizing assets to existing market metrics and not speculative growth or cap rate compression.

In addition to multifamily investments, self-storage has been a niche focus for GVP over the past seven years. We have honed our expertise in the asset class, learned from challenges across market cycles, and built an extensive network to ensure our deals perform along every step of the lifecycle including acquisition, debt origination, operations, asset management and finally disposition. We remain patient to bring our investors select opportunities when the time is right and invest alongside you.

We invite you to connect with us directly to discuss upcoming self-storage opportunities and how this asset class can enhance your portfolio. Thank you for your continued trust and partnership.

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