Self-Storage Construction Hits Four-Year High: What Does It Mean for Industry Growth?

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By Alexander Harris

Reprinted with permission from "The Storage Facilitator" blog.

Shovels were well-used tools in the self-storage business last year. And they could be even more prominent in 2014.

Construction spending on self-storage facilities is on the rise, with $530 million tallied in 2013. That’s the largest amount of industry construction spending in four years, according to new figures from the U.S. Census Bureau.

Total self-storage construction spending rose 48.8 percent compared with 2012. Spending last peaked in 2007, with $1.2 billion invested in developing, renovating or expanding facilities. Self-storage construction spending dropped to a low of $241 million in 2011. Since then, industry construction has been on the upswing, mostly thanks to expansion and renovation projects, industry builders say.

“By far, 2013 was the best year we’ve seen since 2008, hands down,” says Caesar Wright, president of Carlsbad, Calif.-based Mako Steel Inc., which designs, supplies and installs steel buildings for the self-storage industry nationwide.

Pushing Dirt Again

At one point in 2013, Mako had 60 projects on the board simultaneously. “Of those, [more than] 50 percent were add-ons to existing facilities,” Wright says. “That seems to be the bulk of our work. Rental rates increased and occupancy levels increased, so operators wanted to expand if they had the opportunity.”

Rod Lockard, vice president of construction at Investment Real Estate LLC (IRE), an investment and self-storage management company based in York, Pa., says his firm worked on several expansion projects in 2013 that had been put on hold by operators. Many facilities were built between 2005 and 2008, but some owners never got around to planned additions because of the recession. That backlog produced plenty of work for IRE.

“As we rolled into 2013, lending and banks loosened up. A lot of these projects were designed and approved, so there was a quick ramp-up,” Lockard says. “We still have quite a few of them we are doing in 2014.”

Sales at Trachte Building Systems, a self-storage metal-building supplier, climbed 20 percent in 2013 compared to the previous year, according to Jaime Lindau, director of marketing and product development. “We were very busy,” he says, adding Trachte had active projects in 43 states and Canadian provinces last year. Unlike some of its peers, 60 percent of the company’s projects were new facilities.

Forecasting 2014

Wright expects new construction to take up a larger percentage of Mako’s business in the coming months. “I think we will begin to see some ground-ups come into play.”

Louis Gilmore, owner of Pennsylvania-based Miller Building Systems, a supplier and installer of steel self-storage buildings, says the company’s first-quarter pipeline for self-storage projects is 30 percent fuller than it was during the same time in 2013. “It is unseasonably busy. You typically don’t see people pushing permits in December and January, but people are still pressing ahead. This first quarter looks better than any I’ve seen in the last five years.”

IRE is working on four new facilities, according to Lockard. While he expects demand for new facilities to pick up over the next year or two, development will be approached more conservatively than it was during the 2006-08 boom.

“It is not going to be what it was,” Lockard says. “Before, there was a lot of ‘shoot from the hip.’ Now, you have more savvy investors really doing their homework.”

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