The COVID-19 pandemic, and associated shutdowns, has taken a toll on the real estate industry, with retail real estate among the most affected. That has led to renewed focus on alternative uses for traditional retail. Retail-to-industrial conversion is one idea gaining steam. Another is locating self-storage space in retail centers.
“With many retail centers facing challenges, self-storage operators have the opportunity to take advantage of this shift in the market and position their centers in traditional retail centers by renting these large, big-box spaces,” says Erik Ekstein, president and CEO of Ekstein Development Group, which partners with RD Management on self-storage ventures.
“While the conversion from retail to storage is not a new concept, it is accelerating,” adds Ekstein. “Self-storage is a retail business and locating your center in a retail location will only benefit the operation.”
Self-storage has held up well compared to other property types amid COVID-19. In August, self-storage rents increased 0.9 percent from the previous month, according to Yardi Matrix. And Ekstein says he has seen consistent rent collections throughout the pandemic.
“In March, when the pandemic first began, we did see a little higher than usual move-out activity, while move-in activity was very low due to the stay-at-home orders,” says Ekstein. “However, by June, we started to see a big uptick in move-ins as the stay-at-home orders were lifted. Our occupancy levels are now higher than they were pre-COVID.”
Self-storage is often considered a countercyclical investment, as periods of economic turmoil actually increase demand for storage. Ekstein points to three drivers of this rising demand: people will more readily move for new work opportunities amid economic turmoil; increased unemployment may force people to downsize or sometimes move in with relatives; and as companies downsize or fail, they need to store their files, unsold goods, office furniture and other assets.
Loretta Clodfelter is senior editor of Institutional Real Estate Americas.