Why Invest in Self-Storage?
Why Invest in Self-Storage?
Investors are navigating a landscape of extremes as they look at allocating capital in 2022. Dramatic and historic actions taken by Canada’s central bank in response to the pandemic that began in 2020, saw short-term interest rates plunge to almost zero. These actions added fuel to existing asset bubbles in residential real estate and the stock market – pushing them both to historic highs in Canada. With bond yields at very low levels, the naturally diversified 60/40 portfolio (60% equities / 40% bonds) no longer has the built-in hedge it used to. With that volatile backdrop, where can investors go and still have the potential to garner attractive yields and capital appreciation?
One quiet sector of the economy that has emerged unscathed throughout this economic storm is the self-storage industry. It’s a sector of the economy that falls into the commercial real estate space and can almost be thought of as a distant cousin to the multi-family sector with its large, diverse tenant base. A favourable aspect of the self-storage industry is that it does not have some of the standard challenges of multi-family, such as difficult tenant evictions, broken toilets and trash. The operating expenses of self-storage have proven to generally be substantially lower than multi-family also, making it very attractive from a net operating income perspective.
Compared to the United States, the self-storage industry is still relatively young on the supply and demand curve. A recent report shows Canada having approximately 2.5 sq. ft of storage space available per capita whereas demand is north of 4 sq. ft per capita. This is in contrast to the United States where there is on average 8 sq. ft to 9 sq. ft of available storage space per capita. Strong demand in Canada, coupled with favourable immigration policies, organic population growth and increased mobility, should continue to be catalysts to drive customers into the self-storage space. All these factors point to a robust sector of the economy with a potential long runway ahead.
Best Performing Asset Class
Self-storage has also proven itself to be a top investment performer over long periods of time and through different market cycles. A report by NAREIT 2017 published data, shows self- storage to be the top performing asset class in the commercial real estate space from 1994 to 2017* (Source: Nareit 2017.) Not only was it the top performing asset class, its volatility of returns has been substantially lower also, demonstrating strong stability through different market cycles.
We all know 2020 was a very challenging year for many industries and sectors throughout our economy as a result of the pandemic. Once again, from Jan. 31st 2020 to Oct. 31st 2021, self-storage was the top performing U.S. Property REIT – showing a 71.7% total return, proving out its reputation as a recession resistant sector.
Who is Make Space Capital Partners?
Investors in Canada can now participate in the self-storage industry in a passive way. Make Space Capital Partners is a private fund that is open to retail, accredited and institutional investors. The Fund is building a portfolio of stabilized self-storage investments in diverse markets across Canada. Current investors are benefiting from its targeted 6% annual distribution, paid out quarterly in cash or DRIP (dividend reinvestment program) along with the potential for capital appreciation over time. As of this writing, there is a planned sale of the portfolio in mid-summer 2025, with total targeted annual returns to investors in the 12% to 15% range.
Interested investors are invited to reach out to a registered Dealing Representative with an Exempt Market Dealer to receive all the important information needed to make an informed and educated decision on whether this type of investment vehicle is in alignment with their financial goals.