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.
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.”
Michael Scanlon, president of the national Self Storage Association, says 300 to 400 facilities were built over the past couple of years. He thinks that number could double in 2014. “Based on the reporting mechanisms we use, probably about 800 are going to be constructed over the next year.”
However, he estimates that perhaps a quarter of those planned projects won’t move forward.
As the industry gears up to build more facilities, Scanlon cautions against overdoing it. “As occupancy in the industry nears 90 percent, people are going to look at expansion,” he says. “I hope we don’t get into another binge cycle where we overbuild. That is something I hope people are educated on and don’t do.”
Adding more square footage to an already crowded market can diminish revenue for everyone, he adds. Developers need to do “very detailed due diligence” to avoid building in markets that already are saturated.
New Projects on Deck
Since the beginning of the year, self-storage operators have announced a slew of construction projects across the U.S. Here’s a roundup of some of the projects getting off the ground in 2014:
- Public Storage Inc. has at least two projects in the works. The company won approval to build a 174,000-square-foot facility with 1,500 units at 5500 San Fernando Road in Glendale, Calif. The company also bought a 4.5-acre site at 4550 Clark Road in Sarasota, Fla., for $1.3 million.
- Atlanta-based NitNeil Partners is spending $4 million to build a 57,000-square-foot facility in Chattanooga, Tenn. The facility will be managed by Uncle Bob’s Self Storage.
- Clark Investment Group of Wichita, Kan., has committed to construction of five facilities in the New York City-metro area, a mix of new development and conversions. Each project has about 100,000 square feet of space and more than 1,300 units.
- Atlanta-based Safeguard Self Storage has two facilities on the drawing board in Chicago, with a combined footprint of 113,000 square feet and price tag of $15 million.
- The Amsdell Cos. is moving ahead with two conversion projects in its hometown of Cleveland. The first project will convert the historic buildings at 1545-1559 E. Superior Ave. into a 700-unit climate-controlled facility.
- North Carolina-based Penton Development is building its first self-storage facility at 5307 Oleander Drive in Wilmington, N.C. The 200-unit facility is expected to open this summer.
- Rapanos Family LC obtained zoning approval to build a 20,900-square-foot, 166-unit facility at 1547 Washington St. in Midland, Mich.
- Lehi, UT-based Alpine Storage started demolition work at the former Sears building in Wichita Falls, Texas. The conversion project will feature a drive-through area.