What’s Driving Self-Storage Industry Mergers?

The self-storage industry has changed tremendously in the past five years, with an increasing consolidation trend taking center stage. Companies have expanded through acquisitions, with larger enterprises employing assertive expansion tactics to bolster their market presence. Operators have reaped the rewards from consolidation, and this ongoing trend has shown no signs of slowing down.

Factors Driving Self-Storage Consolidation

Several factors contribute to the increasing consolidation within the self-storage industry:

• Market Dominance: In a competitive market, having many facilities in different places gives an investor more market control. As a result, they can define industry norms, wield pricing power, and recruit a more extensive consumer base.

• Portfolio Diversification: A diverse portfolio of self-storage facilities spread across multiple regions reduces the risks associated with local economic volatility. This diversification protects investors against losses in a single market.

• Operating Efficiencies: Having several locations in close proximity to each other can create efficiencies from an operations and expense load standpoint.

• Enhanced Technology Integration: Larger companies can invest in modern technical solutions, such as sophisticated security systems and user-friendly web platforms, giving them a competitive advantage over smaller competitors

• Keep Up With Varying Consumer Behavior: Convenience and flexibility are more important than ever before to today’s consumers. Larger investment firms can respond to shifting demands by providing increased services and amenities that smaller facilities may be unable to give.

• Capital Access: Greater access to cash frequently allows larger investment firms to fund expansion attempts more easily than smaller ones.

Evolution of Self-Storage Trends and Sector Consolidation Ahead

In February 2023, Placer.ai analyzed visitation patterns at self-storage establishments to determine if the trend observed during the pandemic, where individuals sought to reduce their living spaces and keep extra items in storage, was still ongoing. As highlighted in that examination, the visitation trends for self-storage franchises have continued to surpass the levels seen before the pandemic. However, there has been a decrease in the intensity of this trend as consumer habits return to a more typical state.

Anticipated in the coming months is continued consolidation within the self-storage sector, given its current state of fragmentation with numerous smaller operators and regional contenders. According to the Extra Space Storage Presentation in March 2023, the largest five participants (encompassing both ExtraSpace and Life Storage combined) accounted for only 35% of the self-storage space in 2022. An additional 45% originated from high-quality properties held by non-REIT institutional entities. Within this cohort, Placer.ai projects further acquisitions to transpire, with Public Storage, CubeSmart, and U-Haul emerging as the prime candidates for consolidation.

The main pathway for REITS to expand lies in consolidation, especially as they typically prioritize acquiring and overseeing management agreements rather than initiating projects from scratch.

Major Players in the Self-Storage Industry

ExtraSpace Storage, Public Storage, and CubeSmart are positioned as the leading companies by both revenue and size within the self-storage sector. In 2017, most of the top 10 corporations acquired several properties through acquisition and joint ventures, and more developments are now underway. The ongoing consolidation trend has empowered these major players to expand their market presence further. Additional consolidation is probable due to the industry’s dispersed and fragmented structure.

In March 2023, ExtraSpace Storage completed a significant purchase by acquiring Life Storage for a substantial $12.7 billion deal. As a result of the merger, the combined company has become the biggest self-storage operator in the nation in terms of self-storage facility count, boasting more than 3,500 locations. Once complete, it will add nearly 2,000 facilities and more than 88 million square feet to the ExtraSpace portfolio. The company will then hold the industry’s largest footprint, comprising more than 264 million square feet and serving over two million customers, knocking Public Storage from its longheld top spot (it currently operates approximately 2,900 facilities). Following the merger, the combined company will rank among the leading REITs in the MSCI U.S. REIT Index, holding an estimated enterprise value of around $46 billion.

The merger between ExtraSpace and Life Storage is anticipated to bring substantial strategic, operational, and financial advantages to shareholders. Integrating the two company’s advanced technology and data analytics platforms will enable sustained growth in same-store net operating income while delivering exceptional customer service. The merger also enhances diversification by forming a varied portfolio of quality storage assets in demand-driven markets.

Another prominent merger in the self-storage industry is the recent announcement by Public Storage. The company stated that it had entered a deal to buy Simply Self Storage from Blackstone Real Estate Income Trust for $2.2 billion in an attempt to expand its market presence. Public Storage, a proprietor of over 2,800 properties, will continue its growth by incorporating the Simply portfolio. This collection encompasses 127 properties fully owned by Simply, strategically situated across 18 states in densely populated regions.

Takeaways

The transformation of the self-storage industry into a consolidation hotspot exemplifies the volatile nature of the business landscape. Through mergers and acquisitions, larger investment firms with resources, strategic vision, and adaptability influence the industry’s destiny. This trend emphasizes the need to keep flexible in the face of market forces, consumer preferences, and technological improvements. As the art of consolidation evolves, it is evident that this strategy is about more than just acquiring facilities; it is about reinventing how the self-storage sector runs and grows.