Best Returns from #Self-Storage Firms

According to the Bloomberg Riskless Return Ranking, self-storage companies produced the best risk-adjusted return among 10 US real estate investment trust (REIT) indexes in the past decade. They had the highest total return and the third lowest volatility for a risk-adjusted gain of 10.6%.

Companies such as Public Storage, CubeSmart, Extra Smart Storage Inc and Sovan Self Storage rent storage units to small business and consumers by the month. The industry is attractive to investors due to low debt ratios and steady cash-flow growth. Occupancy of storage space is expected to increase by 1 – 3 percentage points and rents will rise 3 – 3.5%. Demand tends to be driven by life changes, which often entail moving, such as college graduation, job changes, divorce or death.

New construction of facilities rose by more than half in the 2000s due to low barriers to entry and cheap financing. The relatively low capital needs of the storage business became more attractive after the financial crisis as investors shunned companies with large debt burdens. The geographic diversification and large base of tenants gives the publicly traded storage REITs some protection from economic swings, offsetting the short-term nature of storage leases.

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