Gone are the days of “build it and they will come” in the self-storage industry. In today’s competitive market, where you choose to build is key. Let’s review the process of land selection and how it impacts the viability of a project. There are many pieces to this puzzle, but taken together, they can give you a clear picture of how to proceed.
To begin, you must determine how much land you need. Before going into escrow on a parcel, order a feasibility analysis to answer this question for you. Beyond size, there are other market criteria to consider. Let’s discuss some of these items.
Equilibrium and occupancy. Asking if a targeted area is overbuilt is a leading question when looking at a potential self-storage market. It’s critical to understand how much storage can be built in an area prior to determining the size of your land. Steer clear of markets that are in equilibrium, meaning there’s zero net gain in tenants overall and not enough population growth to sustain new business.
Physical unit occupancy also plays a role in shaping your evaluation. Some markets can have directly opposing characteristics; for example, an area might have high occupancy despite being overbuilt. I once reviewed a project in a deep urban market that had occupancy levels of 92 percent to 98 percent within a two-mile radius. On the surface, this might seem like the perfect place to build, but the market already had 15 self-storage facilities, with 1,200 empty units.
Storage per capita. Self-storage use is quantified on a per-person, or per-capita, basis. Each market has its own per-capita rate, regardless of state assumptions. If you use statewide numbers without understanding the rate in your particular market, you might over or under build.
For example, one local market may have 3.85 square feet of self-storage per capita and be approaching equilibrium, while another market three miles away may have 11.12 square feet per capita and still be absorbing new square footage. The rate determines the future equilibrium footage absorption based on demographic growth as well as its inherent impact on new storage absorption.
Dwelling type. In addition to the per-capita rate, pay attention to the percentage of single-family homes vs. apartments. In any given market, approximately 30 percent of apartment dwellers move during the course of the year. This creates greater self-storage absorption without the population increase typically necessary to fill more units. Be aware of this criteria so you don’t ignore an apartment market when the density isn’t increasing.
Rental rates. In addition to needing pent-up demand to sustain new storage growth, rental rates play a role in deciding the size and viability of a potential new facility. If they’re too low, regardless of a great market that needs storage, they won’t support the cost of land, development and construction. In addition, once you’re in lease-up, your rates may not be able to meet the needs of your expenses and debt service. Similarly, just because an area has exceptional rates doesn’t mean it can absorb new self-storage.
Hunting for Land
Let’s say we’ve completed our feasibility analysis and determined the market is viable and able to absorb 60,000 square feet of new self-storage. Land-selection criteria has its own set of puzzle pieces. Let’s take a look.
Urban vs. suburban. Is the market characterized as deep urban, which lends itself to multi-story self-storage, or suburban, which is generally better suited to single-story, drive-up buildings? Each has its own criteria in regard to how much land you’ll need. For instance, an urban market might have an average unit size of 90 to 110 square feet. With this assumption, you could build on 1 to 1.5 acres of land. In the suburban market, the average unit size might be 140 to 180 square feet. In this case, you may need 4 to 6 acres for your project.
Zoning. If possible, your site should be approved for a self-storage use, with minimal development fees. Depending on your location, fees can run as little as $2 per square foot up to $14, so make sure you know what they are. Also, try to avoid parcels that require a special- or conditional-use permit. These can take many months to get, and if public approval is required, your neighbors can obstruct your development regardless of the market you’re trying to enter.
Soil, water and snow. Parcels that are flat and balanced are easier to build on and shouldn’t require extensive use of retaining walls. Also be aware of requirements for retention ponds and snow-removal areas, as these can take up valuable land.
Traffic flow and count. Your parcel should be free of obstructions that prevent customers from entering the site. For example, the frontage road should be free of medians. Also be aware of the distance to the nearest intersection, and don’t always assume a parcel on a hard corner is the best. If the traffic patterns are unsafe and your driveway is too close to an intersection, you may face traffic issues that impact the viability of the project. Traffic counts for the nearest intersection should be the highest in the area, if possible.
Visibility. As you review a market, you may notice competitors in the oddest places. They may be tucked behind a big retail center with no visible signage, making them virtually invisible. This can happen when a storage facility gets built next to a big empty lot. It might have great visibility at first, but once the land is developed, that can change. Always be aware of what those empty lots can become, and envision how it may impact your parcel.
As you can see, there are many important aspects to site selection that can impact the viability of your project. Understanding how all of the puzzle pieces fit together will help form a clear picture of the best site for your next self-storage development.
Jo Beth White owns Development Services Inc., which has specialized in feasibility analysis of self-storage and RV-storage projects for more than 15 years. The company works nationwide. Jo Beth also has more than 30 years of experience in construction and development. For more information, call 949.433.3395; e-mail [email protected]; visit www.storagefeasibility.com.