Self-Storage State of the Industry 2011: Financing, Construction and Development

By Amy Campbell Comments
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Will green building and LEED play a bigger role in the future?

Campbell: No question about it. Most businesses across the board are becoming more aware that improving the environment is good business. For example, there are pre-painted building components that are a part of the Energy Star program, which means they’re covered with cool-metal coatings. In effect, these paints can help reduce energy costs because their surfaces can reflect up to 70 percent of solar heat, as opposed to only 20 percent reflected from surfaces with standard pigmentations and reduce interior temperatures as much as 46 degrees.

Fuhlman: Green building and LEED certification are always a positive aspect of any development. Unfortunately, significant subsidies are still generally required to make the additional expenses pencil out. I would expect green building to play a more significant role in the construction process as the technology improves, subsidies increase or utility costs increase.

What role will conversions play this year? What are the challenges?

Campbell: Once again, the lack of reasonable financing for new construction is forcing owners to look elsewhere to build their storage business. One of the alternatives is converting existing buildings into self-storage. Conversions have advantages that many new construction projects don’t have in terms of good retail locations, easy access and, in many cases, a larger customer base―as well as less money needed than with new construction, so long as the property is already acquired.

In some cases, one can get into the business faster by developing a conversion. The challenge is to make sure the upfitting doesn’t become cost-prohibitive, as a result of trying to convert a building that requires too many reparations that are too expensive.

Fuhlman: There’s a national trend toward the conversion of vacant infill buildings to self-storage. This trend is expected to continue. The speed of the overall economic recovery and the recovery of the specific asset classes will determine how much conversion activity takes place in the near future.

Wright: Conversions will remain to play a big role in our industry. With so many commercial and industrial building vacancies, conversions of existing buildings may be pencil out to be a good play within the marketplace. Pointing out the obvious, the construction costs in most cases will be less expensive—given that the slab and shell are already in place. In most cases, fire sprinklers and mechanical equipment also are in place.

What does the future hold for self-storage development this year?

Campbell: Recovery will be sluggish, but probably better than this time last year because other businesses are slowly starting to come back; and the duration of any recession has to do, in large part, with overall confidence on the part of businesses and consumers. Because of the poor economy in recent years, we’ve had to become more creative with our product line, with our marketing and with our overall approach to remaining competitive and successful. This will help us as well as others in the business going ahead as the economy improves.

Fuhlman: Ground-up development is expected to at least maintain its current pace in 2011. Many industry experts predict a significant increase in conversions as vacancies in many asset classes continue into 2011.

Wright: The future of self-storage still remains healthy. It’s safe to say that the market needed a correction, and a correction it got. Many current operators reading this would agree. That being said, self-storage development still continued in these very difficult economic times. That’s quite amazing when you think about it. This industry has proven its resilience, and life conditions dictate that people will continue to use self-storage.

Without a doubt, you need to do proper due diligence when thinking about developing a project. Be smart and consult with industry experts. Construction costs remain low; if you have the right site, this may be your time to take advantage of those low construction costs.

To learn more about the state of the self-storage industry, attend the Inside Self-Storage World Expo in Las Vegas, March 14-16. To register, visit www.insideselfstorageworldexpo.com.

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