I have never rented a self-storage unit. I have stored things at my parents' places during certain periods of my life, such as when I moved to the US for grad school, but as a general rule, I never seem to conclude that I have too much stuff and that I should maybe rent some storage. However, I do on occasion fantasize about having a garage or large "man cave" where I could store an assortment of exotic snowboards, bicycles, and other life essentials. I mean, who doesn't, right?
In any event, I seem to be in the minority, because self-storage is a growing real estate asset class:
Investors have dramatically increased their allocation to self-storage over the last several years [in the US]. A rush into the asset class occurred from 2020 to 2022, when transaction volume hit $50 billion, far exceeding the $35 billion spent during the entire seven‑year period from 2013 to 2020, according to Cushman & Wakefield. Transaction volumes are now normalized but remain well above their pre‑pandemic baseline.
It proved to be the best-performing sector in the NCREIF Property Index from 2005 to 2022, with returns since 2010 nearly double that of the overall index.
So what's driving this? Some of the explanations include a frozen housing market, millennials who haven't yet bought a garage and are starved for room, and small-scale entrepreneurs who use it as cheap warehouse space. According to some reports, this latter use case accounts for nearly a third of total demand. And this makes sense to me. But generally, I have tended to apply an egocentric bias to this asset class. My mind discounts it because I don't personally use it.
One way to look at self-storage is that it represents the "unbundling of residential real estate." Housing has gotten so expensive that we continue to search for ways to make it smaller and more efficient. One second-order consequence of this is that storage now needs to be disaggregated and moved to an off-site location where land is cheaper and the build costs are lower. From this perspective, there are strong structural reasons for the sector's growth.
There are also noteworthy differences between Canada and the US. Americans use self-storage at roughly 2 to 3x the rate of Canadians when measured by square footage per capita. Is this because Americans are bigger consumers and have more stuff? Or is it because the industry is more mature and built out at this point? It's likely both of these factors.
According to Avison Young, the supply of new self-storage in Canada is projected to nearly double year-over-year from under 1 million square feet in 2025 to over 1.8 million square feet in 2026. Another specific demographic factor contributing to this growth is Canada's aging population. People are downsizing and then needing to put their stuff somewhere. How long this stuff stays in storage, I don't know, but it's there.
I think the personal tension I have with self-storage is that there's a big part of me that aspires to have less stuff. When I travel, I take great pride in often packing only a carry-on. There's something liberating about having everything I need in one roller. Less is more. But then again, I could really use a new commuter bicycle and I have been meaning to get into splitboarding. How much do those storage units cost again?
Cover photo by Aga Adamek on Unsplash
A closed-end real estate fund is an investment vehicle with a finite life (call it anywhere from 5 to 12 years, plus extension options). These types of funds have a specific timeframe for raising capital, investing, harvesting the investments they have made, and then distributing proceeds to investors. This is in contrast to an open-ended fund, also known as an "evergreen" fund, which has an infinite life and can accept investments throughout its lifespan.
As a result of these differences, closed-end funds are often used for opportunistic or value-add opportunities where the defined strategy is to buy, fix/develop, and then sell, whereas open-ended funds are often used for core opportunities, where the assets are intended to be held indefinitely for income. Neither fund structure is inherently good or bad; each has its benefits and drawbacks.
However, the perceived weighting of these benefits and drawbacks shifts during market cycles. Since global real estate markets started to turn downward in 2022, the ability to be patient and think long-term has become a key ingredient for survival. You may have done everything you said you would do perfectly, but the market may not be there to grant you the liquidity you had originally planned for.
Now the question becomes: How patient can and should we be?
In my opinion, the greatest opportunities exist for (1) the larger firms that have a strong balance sheet and defensible income-producing properties and (2) the smaller, nimble firms that can capitalize on the dislocation in the market (and aren't overly burdened with legacy assets that are sucking up resources and capacity).
This perspective is true of other sectors as well. This weekend, venture capitalist Chris Dixon of a16z wrote a post titled, "
Cambridge, Massachusetts, requires that 20% of the new space in larger housing developments include affordable homes. This, as we have talked about many times before on this blog, is known as inclusionary zoning (IZ). According to the Pioneer Institute, there are more than 141 communities in the state that have some sort of IZ policy.
But now, what is happening is that the numbers don't work on new housing projects. In the 30 years since the ordinance was enacted, it is reported that it helped create 1,603 affordable homes. However, since 2017 — the year the city increased the affordable requirement to 20% — only 200 new affordable homes have been created. That's approximately 20-22 new affordable homes per year — not much.
These numbers also don't speak to the number of new housing projects that could have been built, but weren't feasible precisely because of the IZ policy. This is the greater risk, because even new "luxury" projects help to relieve housing pressures within a market.
It is for this reason, along with others, I'm sure, that a developer is now suing the City of Cambridge, arguing that inclusionary zoning is unconstitutional on the grounds that it infringes upon people's property rights. To quote the developer, "I [would] have to build at a loss. Eventually, you just throw your hands up and say it doesn't work."
If successful, this case could help to change how cities tax new housing and how they aim to create new affordable housing, though I should mention that there have already been prior rulings on this issue.
Customarily, the way municipalities try to offset the burden of inclusionary zoning is to allow additional density and/or waive certain development levies. However, to accomplish this, you ideally need a planning framework where it's perfectly clear what maximum density would have been permitted without IZ.
I have never rented a self-storage unit. I have stored things at my parents' places during certain periods of my life, such as when I moved to the US for grad school, but as a general rule, I never seem to conclude that I have too much stuff and that I should maybe rent some storage. However, I do on occasion fantasize about having a garage or large "man cave" where I could store an assortment of exotic snowboards, bicycles, and other life essentials. I mean, who doesn't, right?
In any event, I seem to be in the minority, because self-storage is a growing real estate asset class:
Investors have dramatically increased their allocation to self-storage over the last several years [in the US]. A rush into the asset class occurred from 2020 to 2022, when transaction volume hit $50 billion, far exceeding the $35 billion spent during the entire seven‑year period from 2013 to 2020, according to Cushman & Wakefield. Transaction volumes are now normalized but remain well above their pre‑pandemic baseline.
It proved to be the best-performing sector in the NCREIF Property Index from 2005 to 2022, with returns since 2010 nearly double that of the overall index.
So what's driving this? Some of the explanations include a frozen housing market, millennials who haven't yet bought a garage and are starved for room, and small-scale entrepreneurs who use it as cheap warehouse space. According to some reports, this latter use case accounts for nearly a third of total demand. And this makes sense to me. But generally, I have tended to apply an egocentric bias to this asset class. My mind discounts it because I don't personally use it.
One way to look at self-storage is that it represents the "unbundling of residential real estate." Housing has gotten so expensive that we continue to search for ways to make it smaller and more efficient. One second-order consequence of this is that storage now needs to be disaggregated and moved to an off-site location where land is cheaper and the build costs are lower. From this perspective, there are strong structural reasons for the sector's growth.
There are also noteworthy differences between Canada and the US. Americans use self-storage at roughly 2 to 3x the rate of Canadians when measured by square footage per capita. Is this because Americans are bigger consumers and have more stuff? Or is it because the industry is more mature and built out at this point? It's likely both of these factors.
According to Avison Young, the supply of new self-storage in Canada is projected to nearly double year-over-year from under 1 million square feet in 2025 to over 1.8 million square feet in 2026. Another specific demographic factor contributing to this growth is Canada's aging population. People are downsizing and then needing to put their stuff somewhere. How long this stuff stays in storage, I don't know, but it's there.
I think the personal tension I have with self-storage is that there's a big part of me that aspires to have less stuff. When I travel, I take great pride in often packing only a carry-on. There's something liberating about having everything I need in one roller. Less is more. But then again, I could really use a new commuter bicycle and I have been meaning to get into splitboarding. How much do those storage units cost again?
Cover photo by Aga Adamek on Unsplash
A closed-end real estate fund is an investment vehicle with a finite life (call it anywhere from 5 to 12 years, plus extension options). These types of funds have a specific timeframe for raising capital, investing, harvesting the investments they have made, and then distributing proceeds to investors. This is in contrast to an open-ended fund, also known as an "evergreen" fund, which has an infinite life and can accept investments throughout its lifespan.
As a result of these differences, closed-end funds are often used for opportunistic or value-add opportunities where the defined strategy is to buy, fix/develop, and then sell, whereas open-ended funds are often used for core opportunities, where the assets are intended to be held indefinitely for income. Neither fund structure is inherently good or bad; each has its benefits and drawbacks.
However, the perceived weighting of these benefits and drawbacks shifts during market cycles. Since global real estate markets started to turn downward in 2022, the ability to be patient and think long-term has become a key ingredient for survival. You may have done everything you said you would do perfectly, but the market may not be there to grant you the liquidity you had originally planned for.
Now the question becomes: How patient can and should we be?
In my opinion, the greatest opportunities exist for (1) the larger firms that have a strong balance sheet and defensible income-producing properties and (2) the smaller, nimble firms that can capitalize on the dislocation in the market (and aren't overly burdened with legacy assets that are sucking up resources and capacity).
This perspective is true of other sectors as well. This weekend, venture capitalist Chris Dixon of a16z wrote a post titled, "
Cambridge, Massachusetts, requires that 20% of the new space in larger housing developments include affordable homes. This, as we have talked about many times before on this blog, is known as inclusionary zoning (IZ). According to the Pioneer Institute, there are more than 141 communities in the state that have some sort of IZ policy.
But now, what is happening is that the numbers don't work on new housing projects. In the 30 years since the ordinance was enacted, it is reported that it helped create 1,603 affordable homes. However, since 2017 — the year the city increased the affordable requirement to 20% — only 200 new affordable homes have been created. That's approximately 20-22 new affordable homes per year — not much.
These numbers also don't speak to the number of new housing projects that could have been built, but weren't feasible precisely because of the IZ policy. This is the greater risk, because even new "luxury" projects help to relieve housing pressures within a market.
It is for this reason, along with others, I'm sure, that a developer is now suing the City of Cambridge, arguing that inclusionary zoning is unconstitutional on the grounds that it infringes upon people's property rights. To quote the developer, "I [would] have to build at a loss. Eventually, you just throw your hands up and say it doesn't work."
If successful, this case could help to change how cities tax new housing and how they aim to create new affordable housing, though I should mention that there have already been prior rulings on this issue.
Customarily, the way municipalities try to offset the burden of inclusionary zoning is to allow additional density and/or waive certain development levies. However, to accomplish this, you ideally need a planning framework where it's perfectly clear what maximum density would have been permitted without IZ.
The fact that he wrote this post says a lot, I think, about the psyche of investors today. The perceived weighting has changed, and people are now investing and building more for the future. As the late Charlie Munger once said, "The big money is not in the buying and the selling, but in the waiting."
Cover photo by KAi'S PHOTOGRAPHY on Unsplash
For example, if 100,000 square feet is the maximum permitted density without IZ, and an additional 20% is permitted with IZ (+20,000 square feet) you can now calculate whether this additional density is enough to perfectly offset the IZ tax. If it is not, well then, you could maybe have a situation where it's deemed as an unconstitutional "taking" of private land (oh boy, please don't take this as any sort of planning legal advice).
I think most of us would agree that cities are better when they are diverse and attainable to more people. The problem with IZ policies is that they run the risk of selectively taxing only certain people in an effort to create this outcome.
Cover photo by Brett Wharton on Unsplash
The fact that he wrote this post says a lot, I think, about the psyche of investors today. The perceived weighting has changed, and people are now investing and building more for the future. As the late Charlie Munger once said, "The big money is not in the buying and the selling, but in the waiting."
Cover photo by KAi'S PHOTOGRAPHY on Unsplash
For example, if 100,000 square feet is the maximum permitted density without IZ, and an additional 20% is permitted with IZ (+20,000 square feet) you can now calculate whether this additional density is enough to perfectly offset the IZ tax. If it is not, well then, you could maybe have a situation where it's deemed as an unconstitutional "taking" of private land (oh boy, please don't take this as any sort of planning legal advice).
I think most of us would agree that cities are better when they are diverse and attainable to more people. The problem with IZ policies is that they run the risk of selectively taxing only certain people in an effort to create this outcome.
Cover photo by Brett Wharton on Unsplash
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