Self-storage facilities are considered to be more recession-resistant than other real estate asset types for several reasons:
High demand: The demand for self-storage units is driven by an increasing population, consumerism, and a lack of space in homes and businesses. This high demand for self-storage units can lead to stable and consistent cash flow for investors, even during economic downturns.
Necessity: Self-storage is a necessity for many people and businesses, regardless of the state of the economy. People will still need to store their belongings during a recession, whereas demand for other types of commercial real estate, such as an office or retail space, may decrease.
Low vacancy rates: Self-storage facilities have historically had low vacancy rates compared to other types of commercial real estate. This is because people will always need a place to store their belongings, regardless of the state of the economy.
Low default rates: Self-storage tenants are typically individuals or small businesses, rather than large corporations. This means that the risk of default is lower, and the cash flow from the facility is more stable.
Resilience to natural disasters: Self-storage facilities are typically built to withstand natural disasters, such as hurricanes or tornadoes, which can be a major risk for other types of commercial real estate.
Diversified tenant base: Self-storage facilities typically have a diversified tenant base, meaning that they are not reliant on a single tenant or industry for their income. This diversification helps to mitigate the risk of losing a significant amount of income in the event of a tenant defaulting or vacating their unit.
In conclusion, self-storage facilities are considered to be more recession-resistant than other real estate asset types due to their high demand, necessity, low vacancy rates, low default rates, resilience to natural disasters, and diversified tenant base. This means that self-storage investments can provide a stable and consistent cash flow even during economic downturns, making them a relatively low-risk investment opportunity. As always, it’s important to conduct thorough research, and due diligence and consult with professionals before making any investment decision.