Why Self Storage Is Essentially Recession-Proof

Why Self Storage Is Essentially Recession-Proof

Few businesses are recession-proof. When the economy contracts or inflation rises higher than expected, business owners have a decision to make. Some choose to spend. Navigating their way through choppy commercial waters by investing in the business. Other business owners tighten their belt, reducing overheads.

Now, for most, any talk of recession is enough for tough decisions to be made. Changes to be afoot Often very quickly. Especially for businesses left exposed by a looming recession. But that’s not everyone. Some businesses are recession-proof, one way or another.

Interested in learning which businesses are insulated from an economic downturn and why self- storage is one of them? Keep reading.

Recession-Proof Businesses

In all honesty, few businesses are recession-proof. Most businesses experience revenue and profitability growth during a recession. Many businesses fail. Just because the economy and customer spending power contracts. Yet, some businesses are able to buck this trend.

So, what businesses perform well despite a gloomy economic outlook? Let’s take a look.

Essential Goods and Household Products

Times maybe tough, especially when a recession is combined with inflation, but people still buy shampoo, soap, washing powder and dietary staples – we’re thinking here of bread, milk, rice and pasta.

Supermarkets and household goods stores tend to be largely unaffected by recession. They offer products at varying price points – with many being quite affordable, even to people with limited spending power.

Heritage Brands

Despite the high price tag, luxury goods, those sold by heritage brands, also perform well during a recession. For many, money may be tight, but that doesn’t stop us desiring that little treat every once in a while.

For instance, luxury watches from brands, like Rolex, Omega, Patek Phillip for instance, tend to perform well when times are tough. Why? Buyers have significant assets, despite any gloomy economic outlook. There’s also the benefit that many heritage brands do not tend to depreciate so many heritage brand products are seen as sound investments in a volatile economic market.

Personal Vices

We don’t want to give up our vices. They’re pleasurable, even if they’re bad for us. We all justify chocolate and caffeine, despite being on a tight budget. Alcohol and, nicotine, even gambling sales don’t just dwindle during a recession, in many cases, they flourish.

This could be down to the psychological need for us to have some ‘relief’ from the humdrum, frustration, even difficulty of day-to-day life during a recession. Indeed, during the 2008 economic recession, alcohol sales rose by 8%. *

Of course, you don’t need to be an expert in economics or psychology to appreciate that and understand why personal vices are considered to be recession-proof. But what you might be surprised to learn is that there is another industry that’s able to successfully navigate even the deepest recession – self-storage.

Why Self Storage Thrives in a Weakened Economy

If there’s one thing to be true of an economic downturn it’s that people tighten their belt. Frivolous spending ceases, consolidating assets becomes paramount. This is true of both commercial and individual behaviour.

Demand – Both Commercial and Residential

Think about office property. If businesses can work remotely, negating the expense of costly office rental or mortgage costs, they will. This is especially true now that a fair proportion of global businesses are recovering from the effects of Covid-19.

Lower demand for expansive commercial space will lead to increased demand for self-storage. Think about it, downsizing the scope of your commercial property inevitable leads to excess stock, equipment, desks, furniture. If you don’t plan to sell these assets, you’ll need to store them.

The same can be said for downsizing your home. Recession can lead to the ‘Four Ds of self-storage’ or downsizing, dislocation, divorce and death. Now, of course, divorce and death are not unique to a recession, but, statistically speaking, both increase when the economy weakens.

All statistics tell us that demand for self-storage increases in a recession. For this reason, the business is fundamentally recession-proof.

Favourable Operational Costs

Operators and investors in the self-storage space know that premises are relatively easy to operate. You don’t need on-site staff, 24/7. Sure, CCTV and additional security monitoring, reporting and additional protocols will need to be in place, but providing you have all necessary measures, the operational costs are nothing if not favourable.

Of course, fewer staff means lower costs. 24/7 remote monitoring negates staffing overheads. There are some exceptions, however. Climate controlled units come with added expense. This will increase any business costs. But it’ll also increase revenue. Similarly, on-site, in-person, security translates to higher operational costs. However, such operational costs are entirely dependent on individual facilities.

Generally speaking, even the most demanding self-storage assets as less costly to operate than office, industrial, retail or even multifamily spaces. The result? Net operating incomes tend to be quite favourable.

Multiple Tenancy

Yet another reason self-storage thrives in a weakened economy is its ability to provide a valued service for multiple tenants. Provided that a self-storage business is favourably located, meeting the needs of local and regional residents and commercial businesses, it has a good chance of having its units occupied.

Any self-storage business with a strong customer portfolio prior to a recession will likely find that they have the same, or similar volume despite a gloomy economic climate. Why? For starters, in terms of household expenditure, self-storage costs are low. That, and well, where else are property owners going to put any excess belongings?

Conversely, should a tenant or two decide to move her belongings out of self-storage, it’s hardly the end of the world. Most self-storage businesses have a revolving number or let and unlet units. A handful of empty units is hardly going to have a drastic effect on business finances. This is one of the core benefits of running a business with low operational costs!

Flexible T’s and C’s

The final reason self-storage companies are recession-proof is that they offer flexible terms and conditions. Customers are not typically tied down to year-upon-year expense, with no way to break a contract without occurring unnecessary cost.

Shorter, flexible leases allow tenants to vacate their units with little notice. Now, of course, this impacts a storage business’ bottom line, but a flexible business model means that self-storage providers can appeal to potential new customers of a broad range of circumstances – even contemplate a small percentage increase to maximise revenue should, for example, a business’ operating costs increase.

This is notably apparent when you compare the self-storage sector to industrial or warehouse leasing. Generally speaking, industrial property leases tend to range between three to seven years, locking customers into ongoing expenditure. By and large, self-storage leases are operated on a rolling, month-to-month basis. The longest rental contract is typically three months.

Given the consistent demand throughout a recession, it’s difficult for self-storage businesses to justify a rental rate increase. The only caveat to this is if business overheads dramatically increase.

You Can Trust in Self-Storage Businesses Regardless of the Economic Climate

Few businesses are recession-proof. Self-storage is one of them. This bolsters consumer confidence and cultivates trust. Consumers can rest assured that their assets are protected, regardless of the economic climate. Self-storage businesses enjoy the stability of operating free of financial strain in times of economic contraction. This promotes consumer confidence.

There’s simply no getting round the fact that self-storage businesses are, for many, viewed as an essential, necessary expenditure. One that won’t break the bank and that provides a much-valued service that they can’t do without.

Interested in learning more about how simple, straightforward, cost-effective and easy it is to keep your belongings safe and secure? Contact Easy Access Self Storage today.