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Originally published Monday, February 18, 2013 at 8:00 PM

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Self-storage industry keeps on keeping

A nation of packrats increasingly moves possessions into storage units.

The Orange County Register

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For an industry that emerged from nowhere with no inherent allure, no collective marketing savvy and no tangible product to take home, the rental self-storage industry has piled up impressive numbers.

Fifty thousand storage facilities dot the American landscape, most of them austere, nearly windowless buildings wedged into commercial strips and industrial zones. That means the industry boasts more domestic locations than McDonald’s, Subway and Jack in the Box combined.

With each storage yard containing, on average, 500 rental compartments, there are literally millions of garagelike vaults in which to store golf clubs, skis and old clothing, said R. Christian Sonne, a self-storage specialist at Cushman & Wakefield Western, an Irvine, Calif., financial-services firm. The combined square footage of those units is three times the size of Manhattan, by one calculation. Every man, woman and child in the United States could stand inside those spaces all at once, industry officials like to say.

And still do jumping jacks.

“It’s way bigger than people think,” Rachel Greenfield, marketing manager for a storage-related company, said of the industry, which barely existed in the 1960s and began a span of steady growth in the 1970s.

Washington state embraced the budding industry early, said Patrick Reilly, president of Urban Storage, a Seattle storage company that operates about 57 facilities in Washington and Oregon. Reilly also serves as chairman of the National Self Storage Association and president of the Washington Self Storage Association, a nonprofit with about 270 members.

“We were one of the first states to adopt this new business, 40 years ago,” Reilly said.

By the end of the century, Wall Street had discovered the sector. Infusions of cash created tens of thousands of relatively minor storage operators, including more than 27,000 stand-alone “mom and pops,” competing against a handful of Goliaths that control hundreds of locations apiece.

“There are about 900 storage operators in Washington, and about 85 percent are operated by small-business owners,” Reilly said. “I don’t know if there’s a better example of an industry dominated by small-business owners.”

Most new construction ended during the recession, and many operators suffered, but overall the industry held up well compared with the retail and office sectors, Sonne said. Occupancy rates and income are rising again. The industry takes in $22 billion annually.

Such success makes self-storage one of the remarkable stories of U.S. commerce. Even those in the industry are amazed, especially since the first storage yards were almost afterthoughts, an attempt to squeeze a few dollars from land next to freeways or on the outskirts of town. Or land awaiting later development into hospitals or retail centers.

Self-storage “is a real-estate class that isn’t sexy, per se,” said Warren Allan, president of Dana Point, Calif.-based Optivest Properties, which operates 42 storage facilities in six states. “It’s flown below the radar screen.”

Storage always has battled a perception problem: that it is illogical to pay to keep something you already own, and perhaps even pay more in rent than the merchandise is worth.

What no one fully appreciated was how useful temporary storage would become in a highly transient society.

“Self storage appeals to people at different stages in their lives,” Reilly said. For example, if someone gets married or divorced they might need extra space while they transition to the next chapter of their life, he said.

“You have an extra bedroom you’re using to store things, and you find out you’re having a baby,” Reilly said. “You need someplace to store those things.”

And America, it turns out, is a demonstrably materialistic society. People cling to photo albums and school yearbooks. They hang onto objects they might have difficulty replacing, or things that “might be valuable someday,” whether or not they still fit into closets and garages.

Despite the favorable fundamentals, many insiders believe the industry is entering a painful period of consolidation and upheaval, much like what the airline and hospitality industries have gone through. In part, it’s because of the sheer financial might of big firms such as Glendale, Calif.-based Public Storage, the industry leader, which operates more than 2,000 facilities nationwide.

As part of a real-estate investment trust, Public Storage has access to capital at rates far lower than smaller operators can get, industry experts say. Four of the nation’s top five firms, representing some 3,800 storage yards, are held by similar trusts strongly positioned to gobble up smaller competitors.

So far, because of the overall strength of the industry, relatively few smaller firms have put themselves on the sales block, but financial pressures are escalating as the heretofore low-tech industry adapts to the Internet age, industry experts say.

Mom-and-pop companies do not always turn up on the critical first page of online search-engine results, even when they are located near the customer. Instead, the customer sees big firms like Public Storage, which has offered a tough-to-beat $1 move-in special, and storage-booking websites comparable to the travel industry’s Expedia and Travelocity.

The good news for self-storage entrepreneurs is that the business continues to catch on. In the mid-1990s, only one home out of 17 rented a storage unit, according to the nonprofit Self Storage Association, a trade group based in Alexandria, Va. Today the number is one out of 10.

Sonne, the Cushman & Wakefield specialist, said attitudes have shifted; more consumers are willing to accept the monthly cost as a part of their lifestyle. His own unit, near his home in Villa Park, Calif., contains surfboards and ski equipment and his collection of old rock albums — The Who, Dan Fogelberg, Led Zeppelin.

“I’ve been hauling those around since the late ’70s,” he said, admitting, “It’s silly, isn’t it? When you can download now?”

Seattle Times reporter Sarah Elson contributed to this report.

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