45. Storage Units

This episode of Freakonomics Radio delves into the expansive industry of self-storage, exploring its economic and societal impacts.

1. The self-storage industry has grown significantly, driven by urbanization, consumerism, and transitions such as moves and divorces.
2. Self-storage began as a real estate strategy but has become a lucrative standalone industry.
3. Facilities are low-maintenance and profitable, with high demand across economic conditions.
4. Self-storage usage reflects cultural shifts, with younger generations using units as an extension of their limited living spaces.
5. The industry faces challenges such as the disposal of unclaimed and sometimes bizarre items from abandoned units.

1: Industry Overview

This chapter discusses the origins and growth of the self-storage industry, highlighting its role in modern consumer society. Zachary Crockett: "The earliest facilities were more about investing in land than building a viable business."

2: Economic Viability

Details the profitability and operational aspects of self-storage facilities, emphasizing their low overhead and resilience in various economic climates. Zach Dickens: "For the facility owner, most of that rent is profit."

3: Societal Impact

Explores how demographic changes and housing trends have fueled the expansion of self-storage, particularly among millennials. Anne Marie Decoster: "Millennials and Gen Z, they tend to use self storage as an extension of their home."

4: Challenges and Oddities

Covers the less-discussed aspects of the industry, including the auction process for abandoned units and unusual finds. Anne Marie Decoster: "It is very, very rare that a foreclosure sale at auction generates enough money even to cover the rent due."

1. Evaluate Needs vs. Wants: Before renting a storage unit, critically assess what items are essential to keep.
2. Organize and Inventory: Keep a detailed inventory of stored items to avoid unnecessary accumulation and costs.
3. Short-term Use: Consider self-storage as a temporary solution during transitions rather than a long-term option.
4. Understand the Terms: Be aware of the lease terms, especially the procedures for late payments and potential auctions.
5. Safety and Security: Ensure that items stored in units are insured and that the facility has adequate security measures.

Americans love to buy new stuff and hate to get rid of old stuff, which is why storing it all has become a $45 billion business. Zachary Crockett cleans out the garage.

People

Anne Marie Decoster, Zach Dickens

Companies

Extra Space Storage, Public Storage, U-Haul, CubeSmart

Books

None

Guest Name(s):

None

Content Warnings:

None

Zachary Crockett
When Kara Khaloji went through a breakup six years ago, she had to move out and get a place of her own. The new place was smaller, so small that she didn't have room for all of her stuff, and she didn't want to get rid of it. So she decided to rent a storage unit. Mainly things I stored were books, kitchenware. I have a lot of clothes and gear, you could say.

Kara Khaloji
So winter clothes or summer clothes or snowboards. As people in my family started moving out of their homes, I started inheriting a lot of, you know, knickknacks, heirlooms, which I just didn't have room for. Khaloji isn't alone in her quest for more space. Its estimated that one in five Americans rents a storage unit. High housing costs, urbanization, and rampant consumerism have made self storage into an estimated $45 billion industry in the US alone.

Zachary Crockett
And real estate investors are clamoring for a piece of the action.

Anne Marie decoster
Self storage has become sexy because people have recognized what a strong, fundamental business it is. Americans love their stuff, and they don't want to get rid of it.

Zachary Crockett
For the freakonomics radio network, this is the economics of everyday things. I'm Zachary Crockett. Today, storage units. The modern self storage industry traces its roots back to the 1960s. The earliest facilities were more about investing in land than building a viable business.

Anne Marie decoster
It began with folks who have good vision and they imagined where population was going. That's Anne Marie decoster. She's a consultant who's been in the self storage industry for 22 years. They tended to buy land outside of city centers, anticipating that the population would move there. And in the meantime, they put a self storage facility on it so that they could generate cash.

Zachary Crockett
For these early entrepreneurs, storage units were whats called a covered land play. You buy some cheap land not too far from a growing population center and wait until theres enough people nearby to build a hotel or a shopping mall. In the meantime, you need to cover taxes. So you set up a business thats cheap to operate and brings in a little cash, like a storage facility. But a funny thing happened.

Anne Marie decoster
Investors realized that self storage is among the highest and best uses. So instead of selling those, they kept them.

Zachary Crockett
Today, there are around 52,000 storage facilities in the United States, more than 20 million individual units. About two thirds of those facilities are owned by small to mid sized operators. The rest of the market is controlled by a handful of large national corporations like public storage, U Haul, Cubesmart, and extra space storage. My name is Zach Dickens, and I am the chief investment officer with extra space storage. Dickens has been with extra space storage for more than two decades.

During his time there, he's watched the company grow into one of the largest self storage operators in the world. We're around 283 million leasable square feet today and 2.6 million units that we operate. So thats quite a number. Those units vary in size. On the lower end, some are just 25 sqft.

Those are generally good for someone like a college student. They hold a twin mattress, a dresser and maybe a few boxes. On the bigger end, youve got units that are around the size of a two car garage and it goes up from there. The monthly rental on a unit varies based on size, location and how fancy it is. Some are climate controlled.

Others get hot in the summer and cold in the winter. The average unit price today is somewhere around $180 a month per unit. And that's probably on a unit that's a little bit bigger than a ten by ten unit or 100 sqft out there today. For the facility owner, most of that rent is profit. Operators have to pay for things like property tax, insurance and utilities.

And many facilities have a manager on site during business hours. But as far as real estate goes, storage is a pretty low maintenance business. If you looked at residential, when somebody vacates a property or an apartment, you have to go through a process of doing a lot of tenant improvements, whereas on the storage side of it, you simply roll up the door, they take their belongings and we sweep out the unit and it's ready to rent for the next person. It's also a business in constant demand. Around nine out of every ten units tend to be occupied at any given time, and tenants are easy to replace when they vacate.

Zach Dickens
If you are in a retail space and you have an anchor tenant go out of business like a bed, bath and beyond, or some of those that have had issues, it changes your economics dramatically. Whereas if you lose one or two storage customers, it's a small loss to the property and we can quickly replenish that with another customer.

Zachary Crockett
Most self storage units are offered on month to month leases. Dickens says that most people think theyll only have to use a unit for a couple months, but theyll actually end up staying much longer. They typically stick around somewhere between 14 to 16 months on average, depending on the storage facility. A move into a storage unit often revolves around some kind of major life. Eventually it could be a college student graduating, a military officer being deployed, or a family moving to a new home.

Anne Marie decoster
People need storage when they're in transition, when life events happen, like having babies, or maybe their parents are growing elderly and they need to move in with you. When divorce happens, often there's a period of uncertainty and transition. When people move, they need storage. They're going to sell their home. They have to get the clutter out.

So they rent storage. But another large chunk of the customer base is people who simply don't have room to store all of their stuff. We find a lot of use between people that are renting because they don't have a lot of space within their apartments. And, you know, we're like an extension of their apartments where they can store their holiday belongings, their decorations and all that. This is especially true of millennials, who now make up the largest share of storage renters in America, baby boomers, they.

Tend to store memories. They store grandma's living room furniture or China. They don't visit that stored property very often. But millennials and Gen Z, they tend to use self storage as an extension of their home. They leave in the morning, they get their kayak, they go kayaking.

They come back late in the day, and they put it back in the storage unit because they don't have any place else to store it. They can't store it on the balcony of their apartment. With the rising cost of housing, many renters are downsizing. Across the nation. The size of new apartments in urban centers is also decreasing, partly because developers are building more studios.

Zachary Crockett
At the same time, Americans are buying more stuff than ever before. It's the american love affair with their stuff that creates the demand for self storage. We are a wealthy country with a lot of things, and we want to keep them and we want to store them. So what exactly are all of these things that people are storing in their units? And what happens when they stop paying rent?

That's coming up.

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Everydaythings just go to indeed.com everydaythings right now and support our show by saying, you heard about indeed on this podcast. Indeed.com everydaythings terms and conditions apply. Need to hire you. Need indeed during his time at extra space storage, Zach Dickens has seen people use storage units for all kinds of things. You see a lot of furniture, right?

Zach Dickens
You see a lot of couches, that sort of thing. We have musicians that have to store their equipment in a temperature regulated environment, people with vehicles that want to preserve those vehicles, people with heirlooms that don't want to store them at home, small businesses that want to store excess product. Pharmaceutical reps use us because they're not allowed to store their medicines on their own property at home, and so they'll use us as a secure alternative there. Tenants are almost always required to get insurance on their unit, and they're generally prohibited from using it to store more than $5,000 worth of stuff. What you put in there, though, is entirely your business.

Zachary Crockett
That is, until you stop paying for it. In that case, your stuff goes to the highest bidder.

In most states, when a customer is laid on rent, storage operators are required to send out multiple notices over the course of 30 or 60 days. When the notices go unanswered, the units contents are seized and auctioned off. Reality tv shows like storage wars and auction hunters often make it seem like storage units full of hidden treasures are abandoned on a regular basis. Ann Marie de Coster, the storage industry consultant, says the truth is a little less glamorous. It is very, very rare that a foreclosure sale at auction generates enough money even to cover the rent due.

Anne Marie decoster
They generate small sums of money because, for the most part, people store memories, you know, your children's schoolwork and your grandmother's dresser and clothing, furniture, household goods. And those are not things that sell high. In a public auction, where the consumer is determining the value of it, that's. Not to say there isn't the occasional crazy find. In 1989, a contractor in Long island paid $100 for a unit and found a futuristic car used in the James Bond film the Spy who loved me.

Zachary Crockett
He later sold it at auction for just under a million dollars. The winning bidder was Elon Musk. Dacoster has a few tales of her own. We had a whole unit of coffins that needed to be auctioned off because the business had gone out of business. So the owner operator contacted mortuaries and then, you know, five or ten of them bid.

That doesn't mean the storage facility operator got a windfall. Any proceeds from an auction that are in excess of the rent owed are returned to the renter, and many times the renter can't be found. They moved, they died, they are in jail. Typically, if the money's not claimed, it reverts to the state or the county. Other items don't have any monetary value, but still require legwork from the storage operator, like an urn full of cremated human remains.

Anne Marie decoster
Those are the cremains of a loved one who maybe died 40 or 50 years ago, and they were very well cared for for ten years, 20 years, 30 years. And then there's this dilemma, you know, what do you do with them? And many, many operators will call one church and cemetery after another to find a place where they can bring the cremains. The relative secrecy of storage units sometimes leads to more morbid fines. A unit in Colorado contained a pile of police evidence, including a bloody rope and an axe.

Zachary Crockett
The bodies of a woman and her two sons, who had been missing for twelve years, were found in a Seattle unit. There have been units that contained meth labs, boxes full of stolen passports and illegal firearms. But stories like this are pretty rare. Industry experts say that only around one to 3% of storage units are auctioned off in any given year. And every state has laws that require plenty of notice before an operator can sell someones stuff.

Anne Marie decoster
No one goes into self storage to sell renter's belongings. They go into self storage to rent space. And when a renter is not paying rent, what they really want is to be able to rent it to someone who will. And there's usually a new tenant waiting in the wings, because storage is a business that bucks economic trends.

When things are good and people are buying more things, self storage does very well. But when things are not as good and people are hurting, storage does well under those circumstances too, because that's when people have to combine households or they have to move into smaller living quarters. So one of the great dynamics of the industry for an investor or an owner operator is that regardless of the business cycle, self storage tends to do well. In recent years, storage units have followed the path of nursing homes, mobile home parks, and car washes. Institutional investors have been consolidating the industry in a bid to gain market share.

Zachary Crockett
In 2023, operators built 49 million storage space, nearly 16% more than they built the year before. In some high growth cities, storage units have been popping up so fast that legislators have enacted moratoriums, temporarily banning new construction. The industry has been fighting back. I think it's short sighted to try to prevent self storage development. It's a great way to use space that's not otherwise used.

Anne Marie decoster
You know, the triangular shaped piece of land that has a funeral home on one side and a 55 plus community on the other side, and a retail business on the third side, and then has a street front. That's a great opportunity for self storage because they don't have to be a specific size or shape. Storage units may be a symptom of overconsumption, high housing costs and shrinking apartments. But for tenants like Cara Khaloji, theyre a home away from home, a place to put all of the things we dont really use but cant seem to part with. Youre not getting a house, you know, and even if you are, youre sharing living space with another person.

Kara Khaloji
At least 50% of my friends have storage space.

If you want to keep stuff, you're going to have to put it in storage, whether it be for two years, five years, or longer. Which isn't a bad way to be because you can really get down to the core of what is super important to you in the long term.

Zachary Crockett
For the economics of everyday things. I'm Zachary Crockett. This episode was produced by me and Sarah Lilly and mixed by Jeremy Johnston. We had help from Daniel Moritz Rapson.

Well, I bet that operator is pleased to find that those coffins are empty. Yes, very much so. You don't want to find one that isn't. That's for sure.

Anne Marie decoster
The Freakonomics radio network, the hidden side of everything.

Kara Khaloji
Stitcher.

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