Over the past 40 years, the self-storage industry has remained an intriguing and challenging combination of industrial-zoned real estate within a retail-based business model. As the industry matured from a niche product into a desirable institutional classification, the retail nature of renting self-storage continues to take on added prominence and significance.
Consider the generational evolution of self-storage development that began in the early 1970s. The “first generation” of facilities were located primarily in rural areas and tended to be single-story, drive-up storage garages.
As the self-storage business matured and public awareness grew in the late ’70s and early ’80s, a transformation into the “second generation” of facilities occurred. These new generations of properties began to open up in suburban and urban locations with additional security features and amenities.
In the late ’80s and early ’90s, we began to see a move into a new “third generation” of self-storage facilities. These new properties possessed characteristics and appearances of modern office and retail properties. Multi-story properties began featuring high-end construction with brick and glass exteriors, professional landscaping, climate-controlled space, high-tech security systems, hydraulic elevators and luxurious retail sales offices. Third-generation properties began to open up along high-traffic thoroughfares and highways, located in affluent neighborhoods and densely populated communities.
As we entered the new millennium, the “next generation” of self-storage emerged. The mixed-use combination of retail businesses and self-storage is gaining favor in desirable commercial and retail corridors. Retail outlets acting as demand generators are attracting increased traffic to self-storage properties. Subsequently, self-storage operators are able to command higher rents in convenient retail-oriented locations.
Additionally, the retail components of these new developments help alleviate zoning and permitting challenges associated with self-storage facilities. The multi-tenant developments have turned these self-storage facilities into some of the most successful properties within the industry. The following are examples of these next generation self-storage developments.
Clybourn Galleria and U-Stor-It
The Clybourn Galleria in Chicago represents one of the most unique and successful mixed-use retail and self-storage developments in the United States. Previously known as the Artmark Building, the Clybourn Galleria is a 386,000-square-foot conversion of an 80-year-old former furniture factory in the heart of Chicago’s “Clybourn Corridor.”
In the past decade, the Clybourn Corridor had transformed from a stretch of languishing industrial buildings near Chicago’s densely populated lakefront neighborhoods into a trendy 1.5 mile retail corridor with several national outlets including Crate & Barrel, Best Buy, Whole Foods and Bed, Bath, & Beyond.
The Artmark Building was the last major industrial property remaining in the Clybourn Corridor. The building was located in a planned manufacturing district, which prevented residential redevelopment but was ideal for self-storage. The previous owner, Trizac Properties Inc., a public REIT, planned to redevelop the property into a telecom hotel datacenter, but when the telecom market dried up, Chicago-based First American Properties purchased the shuttered property.
The property was too large for renovation into a stand-alone self-storage facility. Instead, a new “lifestyle” retail development was designed consisting of upscale retail, self-storage and luxury offices. The development’s retail focus was geared toward the lifestyles of young professionals and urban couples residing in the adjacent lakefront neighborhoods of Lincoln Park, Old Town and Lake View. The surrounding demographics were highly desirable for self-storage, with a population of nearly 150,000 within 1.5 miles and average household incomes exceeding $100,000.