By Jamie Lindau
On paper, self-storage development seems like an easy and profitable way for people to get into business for themselves. The buildings can be the most basic construction available, and there just doesn’t seem to be a downside. In reality, once you get into the process, it’s much more complicated than it looks. A new self-storage developer must make many choices today that will impact him for decades to come.
The bad news: In the last five years I’ve seen more people go bankrupt building self-storage than in the previous 20 years. In most cases, factors leading to failure include building in a poor location, building too many units, or construction costs that couldn’t be supported by the area’s rental rates.
The good news: In the last four years, there has been limited new development, allowing time for existing facilities to fill and stabilize. As a result, there are more opportunities for a new developer to locate a building site where demand exists. Here’s an in-depth look at the key areas every new owner or developer needs to understand when building a new facility.
Selecting a Self-Storage Location
The biggest concern for owners today is to make sure the area has demand for more units. Owners/developers should do a preliminary search of the competition to evaluate the market. If you see sites that are three or four years old and are only at 70 percent occupancy, this tells you the market is still soft and you should look somewhere else.
If you find an area where the facilities have an occupancy of more than 90 percent, it might need further study. However, before hiring a feasibility consultant, do a thorough investigation of the available land that might be good for self-storage development.
First, you need to know what kind of zoning is required to develop self-storage in the area. Zoning is often the biggest hurdle. You might find a great location, but if it’s zoned with a C-1 classification and self-storage is only allowed in “business highway” or “light industrial,” you may be chasing your tail. It’s important to find land on which you can actually build.
Ideally, you’re looking for an affordable, properly zoned, flat, highly visible piece of property with a high traffic count, which is close to population centers (or at least closer than the competition). You’ll rarely find all of those qualities in the same parcel. Once you find a piece of property that fits your criteria, hopefully it will be large enough to build a profitable self-storage facility.
Now we get to the economic feasibility of the site. There are many scenarios you may need to consider to determine if you can build a profitable business.
There are many ways to lay out a site. It’s important to maximize potential profit through your design, but you still need to be able to consistently keep the facility full. Many people say, “I want to make sure I have all drive-up units.” Customers may prefer this for convenience, but the design may lose too much land to driveway space and, therefore, may not be the best choice in all areas.
When looking to maximize the profitability of a site, first consider extra-wide, single-story buildings. This increases your percentage of rentable square footage on the land. By adding climate control to the interior units in the middle of the building, you can also increase the rental rates. Adding additional levels is another approach, although the expense of an elevator and space consumed by stairwells cuts into the bottom line. Armed with competitor rates in your area and ballpark building costs, you can begin to evaluate whether to continue exploring a particular site.