Maybe millennials aren’t such minimalists after all.
Self-storage demand continues to remain high in U.S. markets that have cultivated a following among millennials, according to the November 2018 self-storage report from real estate data provider Yardi Matrix.
The report says self-storage development activity (planned and under construction) is percolating in several metro areas that draw millennials:
- Portland, OR: 30.5% (new development percent of existing inventory)
- Nashville, TN: 24%
- Seattle, WA: 18.6%
- Boston, MA: 17.6%
David Dent, senior real estate market analyst at Yardi Matrix, said other self-storage markets that attract millennials — including Austin, TX; Denver, CO; and Charlotte and Raleigh-Durham, NC — also are seeing robust development activity.
‘Like an off-site closet’
In many cases, millennials are renting self-storage units in tandem with apartments because the cost per square foot of storage is roughly 30 percent less than it is for an apartment, Dent said.
“So it’s like a less expensive off-site closet,” he said.
Even in less-hyped markets like Minneapolis, MN, millennials living in apartments are boosting self-storage demand.
“In cities like Minneapolis, we see that rents are growing downtown because of millennial demand,” Dent said, “even though suburban Minneapolis is seeing storage rent decreases due to the prevalence of basements in the suburbs.”
Growing up and accumulating stuff
But it’s not just apartment-dwelling millennials who are driving storage demand. As more millennials buy houses and amass wealth, they’re behaving more like their predecessors.
And that includes renting storage units, said Jeffrey Norman, vice president of investor relations and corporate communications at Extra Space Storage Inc., in a recent interview with Commercial Property Executive.
Norman noted that as a percentage of households, millennials make up the biggest share of storage users in the U.S.
“Millennials are our fastest-growing customer cohort,” Norman said. “What remains to be seen is if they will be valuable customers. Today, many of them have a shorter length of stay than Gen X or boomers.”
The Self Storage Association’s most recent demand study, released in December 2017, found that 14 percent of millennial households in the U.S. rented storage, with Generation X at 11 percent and baby boomers at 7 percent.
Shorter and smaller
Aside from shorter lengths of stay, some millennials are seeking out smaller storage spaces.
Dent said 5×5 units tend to perform better than larger units in some millennial-magnet areas like Seattle than in some boomer-heavy places like Tampa, FL, “presumably because millennials have less stuff than baby boomers.”
From October 2017 to October 2018, rents grew 2 percent for non-climate-controlled 5x5s and 3 percent for climate-controlled 5x5s in the Seattle market, according to Yardi Matrix. Meanwhile, rents were flat for non-climate-controlled 10x10s in Seattle and declined 2 percent for climate-controlled 10x10s.
However, the sort of year-over-year trend witnessed in Seattle didn’t materialize in every market that’s popular with millennials.
“The millennial growth story seems to be powerful, though we don’t have it quantified yet,” Dent acknowledged.
Aging into storage
Millennials are a “positive force” for self-storage expansion, Jeff Adler, vice president of Yardi Matrix, pointed out during an October 2018 webinar.
Millennial employment is rising versus other age groups and millennials household formation is up too; the oldest millennials are now 37.
A report published earlier this year by Fort Worth, TX-based Karr Self-Storage, a team within Marcus & Millichap’s National Self-Storage Group emphasized that millennials are poised to lead the next generation of storage consumers, partly because of their desire for lifestyle flexibility and mobility.
“Many in the industry assumed that student debt, at-home living and slower career acceleration would prohibit the millennial cohort from becoming a reliable tenant base,” the Karr Self-Storage report says. “Although these macro trends may exist, many young people are obtaining full-time careers, purchasing homes, starting families and utilizing storage, just like previous generations.”