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There is no doubt that “on demand” or “full service” storage is making waves within the storage industry, despite the lack of recognition from major self-storage operators. Top investment firms across the United States have invested millions into on demand storage startups because they offer what self-storage facilities cannot – flexibility and convenience.
In the era of our society’s “on demand economy,” consumers’ decision-making is driven by primarily by these two factors. We need look no further than Uber, the largest force behind the upheaval of the taxi industry, for proof of the “on demand” movement. During the last two years alone, Medallion Financial Corp. (lender for taxi medallions), saw its stock price decline from roughly $11 to $2 (NASDAQ:MFIN).
In time, we will see similar trends with the large publicly traded self-storage REITs, as consumers continue to prioritize convenience, flexibility, and price. The full-service model eliminates location and means as factors or obstacles when choosing a facility.
Full service storage companies, including my company OnDemand Storage, eliminate these obstacles, and creates value for the customer by charging only for space used. Because each traditional self-storage facility has a limited number of specific-sized units, customers are often forced into units larger than needed, and overpay as a result. Full-service operators have an infinite supply of “any size” unit.
Couple this kind of flexibility with macro trends in urbanization, and it’s clear that on demand storage is only increasing in popularity. With the lion’s share of capital investment directed at companies headquartered in major cities, small living in apartments and condos will continue, as well the demand for more space. Data shows that both Baby Boomers and millennials are moving back to urban areas, and are willing to trade garages and basements for proximity to jobs and social centers.
Millennials prefer on demand
Millennials accustomed to using on demand services are far more likely to use an on demand model as opposed to the labor intensive self-storage process, especially when full service storage companies offer cheaper prices because of cheaper real estate.
Full service storage opens a new market of customers that previously would not have used storage. We have tapped into a market of consumers who are now interested in storage simply to free up space in their homes by storing seasonal clothing or items such as sporting equipment (without overpaying for an entire unit). We call these customers “City Store-ers” – they place a high value on maximizing their apartment or condo’s square footage, but only if they can do so in a convenient and cost-effective manner that does not interrupt their lifestyle.
Self-storage has made a living off being in high traffic, highly visible locations, but this has forced operators to raise rents to unsustainable levels to generate meaningful NOI. OnDemand Storage is located eight miles outside of Boston, allowing us to charge fair rates for storage plans. Our 10×10 plan costs around $150/month, including free pick up and drop off. I have seen 2nd floor 10×10 units as high as $265 per month in Boston, with averages around $185.
While traditional self-storage is purely a real estate investment focused on optimal occupancy rates and NOI maximization, on demand storage has a customer centric business model, providing more value per dollar.
It’s this focus on doing right by the customer that will help drive on demand storage to become the preferred method of storage within the next five years.