U.S. Self-Storage Industry: STEEP Analysis & Porter's Five Forces

Industry Overview

Self-storage (short for "self-service storage," also known as "mini storage") is a substantial industry in the United States and globally. The U.S. self-storage industry comprises approximately 50,000 facilities. The Self-Storage Association estimates that the industry generated total sales revenues in 2009 of more than $22 billion. The average size of a self-storage facility in the U.S. is approximately 46,200 square feet of rentable space (SSA, 2010).

Self-storage facilities "lease space to individuals, usually storing household goods, or to small businesses, usually storing excess inventory or archived records. The rented spaces, known as 'units,' 'rooms,' or 'lockers,' are secured by the tenant's own lock and key" (Self-Storage, n.d.). The standard operations and policies of self-storage facilities are typically as follows:

"Facility operators do not have casual access to the contents of the space. A self-storage operator never takes possession, care, custody, or control of the contents of the storage rental space unless a lien is imposed for non-payment of rent. Self-storage facility operators frequently provide controlled access to rental space areas, individual door alarms, interior unit lights, and security cameras. Goods or items stored are either not insured by the self-storage operator, or insured only to a minimal degree; possessions stored are at the tenant's 'own risk,' or can be protected by tenant-purchased homeowner's insurance or by purchasing self-storage tenant insurance." (Self-Storage, n.d.)

There are five major players in the industry: "four public companies (Public Storage, Extra Space, Sovran, and U-Store-It — Real Estate Investment Trusts), plus U-Haul (a public company/non-REIT), who together own and operate some 4,750 self-storage facilities, or about 10% of all primary facilities (or 9.5% of all U.S. facilities)" (SSA, 2010). In addition, "another 30,230 (non-Top-5) companies own and operate the remaining 45,250 self-storage facilities (an industry-wide average of 1.5 'primary' facilities per non-Top-5 company)" (SSA, 2010).

These figures are somewhat inconsistent with those reported by the Self-Storage Almanac 2008, which reported that "82.9% of the industry ownership is in the hands of small mom-and-pop operators. These operators have little or no branding or company image. About 10.3% are owned by the top five operators: Public Storage, Extra Space Storage, U-Store-It, Sovran Self-Storage, and U-Haul. The other 17.1% is made up of the top 100 operators, which own or manage from 7 to 247 facilities" (Self-Storage FAQ). Despite these discrepancies, the picture of an industry with a few large players and a majority of small, independent operators is clear.

Environmental Forces (STEEP Analysis)

Demand for self-storage services is driven by population growth, mobility (often driven by life changes such as marriage, divorce, and job change), and consumer spending. In recent decades, the trend has been an increase in storage usage by U.S. individuals and families. Nearly 1 in 10 U.S. households — approximately 10% (10.8 million of the 113.3 million U.S. households in 2007) — currently rent a self-storage unit. This has increased from 1 in 17 U.S. households (6%) in 1995, representing an increase of approximately 65% over fifteen years.

Additionally, military deployments related to the Afghanistan and Iraq wars may also have contributed to this increase since 2002. "More than 700,000 self-storage units nationwide are rented to military personnel (4% of all units); however, in communities adjacent to domestic U.S. military bases, military occupancy can range from 20% to 95% of all rented units" (SSA, 2010).

In recent decades, the most significant technological change in the industry was the development of portable storage units. "The self-storage industry was revolutionized when portable storage was introduced. Portable storage removes the hassle of hauling personal belongings to the storage facility. It can be used to help people move, as well as to add convenience for those wanting to store their belongings for a period of time" (Self-Storage Industry Trends). Companies that are leaders in this growing segment include franchises Big Box Storage and P.O.D.S. (an acronym for Portable on Demand Storage). Door to Door Storage has also established a recognizable brand in many regions.

Mobile storage units are typically somewhat more expensive for the customer than fixed self-storage facility prices. While unit sizes and amenities vary, a mobile unit might average $230 per month for an 8×8×12-foot space, versus approximately $140 for a 10×15 fixed-location unit (How Much Does Self-Storage Cost, 2010), though mobile units offer added convenience.

New construction techniques are also impacting the industry. "There have been considerable levels of investment in developing new construction techniques for this mature industry; the implementation of movable walls within mini-warehouses and self-storage units has provided greater flexibility to both customers and operators" (IBISWorld, 2010).

The economic downturn and recession from 2007 to 2010 impacted the self-storage industry. For example, the slump in the real estate market affects the storage industry in particular because, when people are selling their homes, they often need to move quantities of belongings out of their house and into storage to prepare the property for prospective buyers (Lucas, 2009). Nevertheless, the industry saw overall revenue growth of 2.5% in 2009 (IBISWorld, 2010).

Fewer than 250 new self-storage facilities came online in the U.S. during 2009, and the trend in new construction has been down significantly over the preceding four years (SSA, 2010). This slowdown in new construction may also reflect some consolidation in the industry (Sonne, 2007). Public Storage, taking advantage of its solid financials and market leadership, acquired 30 existing storage facilities in the Los Angeles area (Public Storage, 2010), increasing its market footprint and visibility in that region quickly without the risk of oversaturating existing markets through new construction.

An additional effect of the economic downturn — particularly within the real estate market — is that, while it may have sustained or even increased the number of customers displaced due to relocation, many of those relocations are being driven by foreclosure. Because these customers are more likely to be in constrained financial circumstances, operators have expressed concern about their viability as long-term tenants.

From an environmental and ecological standpoint, self-storage facilities have exposure to and can be held liable for a range of environmental risks. Appropriate liability insurance can help mitigate these risks. Some of the risks include abandoned hazardous waste, "midnight dumping," mold, hazardous runoff during rain events, accumulation of petroleum hydrocarbons in the soil, and misuse of self-storage spaces involving activities unknown to the facility manager (ArticlesBase, 2010).

Political, regulatory, and legal forces impact the self-storage industry in several ways. In the area of real estate taxation, all storage companies — whether fixed location or mobile — must maintain land and buildings to hold stored items. Currently, the average self-storage operation "pays between $30,000 and $40,000 per year in local property taxes. The entire industry pays more than $3.0 billion per year in local property taxes nationwide" (SSA, 2010). As real estate values have declined in many U.S. markets during the recession, property taxes may be correspondingly reduced.

Another legal consideration for storage companies involves lien and bankruptcy laws — for example, what happens when a customer stops paying and the storage company is left holding goods? Industry groups lobby for favorable lien laws, including efficient and streamlined lien notification processes.

Mobile self-storage companies also face additional regulatory challenges, as some municipalities have passed or are contemplating regulations that affect the placement and use of mobile storage units. "Typically, the laws restrict placement of the containers, the amount of time a container can stay on a particular property, and the number of times a container can be delivered to a particular address. Some municipalities also adopt ordinances that limit the maximum cubic feet a container can occupy, the total number of containers that can be in place at any time, and even the allowable uses for the containers" (Pascal, 2009).

Several ordinances require permits for placement of mobile storage units, increasing cost for both operators and customers. In recent years, the Self-Storage Association has helped develop model legislation to ensure community needs are addressed without placing undue burdens on self-storage operators.