Self-Storage’s Next Frontier: Tertiary Markets
The self-storage sector is entering a stabilization phase after a decade-long building boom, marked by high demand and relatively limited supply. There’s still opportunity, but things are settling down a bit.
Unless you’re looking at tertiary markets.
A RentCafe report said that smaller metropolitan areas with populations under 2 million are “the places where demand meets limited supply” the report said.
“Historically, self-storage development has concentrated in busy urban hotspots, leaving smaller markets overlooked and underdeveloped,” Yardi Market Analyst Maria Gatea told Connect CRE. Consequently, many of these tertiary markets are now experiencing an inventory shortage, while demand is on the rise.”
Gatea, who authored the report, said that migration is another demand driver in smaller areas. “These markets often offer more affordable housing options and a better work-life balance, compared to the secondary and primary markets,” Gatea pointed out. For instance, Springfield, MA, which tops our list, illustrates these trends, boasting still affordable homes and a growing population by almost 11% over the past decade. Springfield’s inventory is 2.7 square feet per capita, allowing additional self-storage inventory growth.
Other New England self-storage growth metros highlighted by the report as areas to watch included the Providence-Warwick, RI-MA and the Worcester, MA-CT MSAs. Additional tertiary markets with undersupplied self-storage inventory include Honolulu and the U.S. West, like Boulder and Greeley, CO, and Chandler, AZ.
Meanwhile, the report identified the South as “the country’s best supplied region for self-storage.” Though cities in Texas and Georgia experienced high levels of in-migration and residential construction, “self storage development in the southern metros kept a high enough pace so that it’s now mostly able to meet the local demand,” the report explained.
Yet even in the south, Gatea said there are some areas with untapped potential, like McAllen, TX. While this South Texas city had an 8.9% increase in population over the past decade, self-storage space per capita is barely 6.5 square feet.
Gatea indicated that the outlook supports “significant potential for self-storage development in tertiary markets where intensified move-in activity meets undersupply and varied demand sources.” She also explained that the sector continues evolving in areas including demand drivers and client base. The existing stock also determines whether a market can absorb additional space. “Factoring in all aspects, including traditional and new market drivers, might be key to capitalizing on the positive self-storage fundamentals,” Gatea added.
