Why Multi-Story Building Is a Rising Trend in Self-Storage

Multi-story self-storage isn’t new. However, what used to be considered only by urban developers is now becoming standard in many markets. Going vertical is often the best way to match efficiency with market demand, no matter the size of the site.

As recently as 15 years ago, it was commonly believed that some markets might not absorb multi-story self-storage projects. I recall hearing advice like, “If prospective tenants use an elevator to get to work or their home, it works. Otherwise, stick to single-story.” It’s questionable whether that was ever true, but the industry has certainly disproven that notion in the past decade. Multi-story is a rising trend for good reason. Let’s examine why.

Market Demands

U.S. population trends provide an interesting backdrop to the rise of multi-story development. According to 2018 census figures, about 31 percent of all housing units are occupied by renters; and we know home renters are often more mobile and generally demand smaller unit sizes—and more frequently—than homeowners.

Population growth and migration patterns are also pushing demand for multi-story storage. In recent years, suburban and exurban/commuter-town growth has outpaced urban growth. Smaller metro areas are growing faster than large urban ones. Urban revitalization and adaptive re-use of vacant warehouses or industrial buildings creates favorable environments for storage operators and developers.

Millennials, who now comprise the largest segment of U.S. adults, are beginning to move further from home. Anecdotally, we believe this generation may be most interested in vibrant life experiences, ease of social interaction, and value-based or temporary housing. At least in 2018, they’re more likely to live in apartments and close to urban centers. They’re a driving force behind the proliferation of micro or economy apartments in cities. Like generations before them, they acquire and need to store their stuff.

Finally, self-storage tenancy is increasing. Here in America, storage has become another luxury, even if demand typically stems from negative or stressful life events. Established facilities benefit from the relative “stickiness” of tenancy. Every wave of new move-ins brings in another small batch of long-term renters, even if customers believe they have a “short-term need.” The regular churn of life events bolsters market demand for the long term.

Business-Model Benefits

Despite the national trends, it can still be difficult to find the right market or site on which to build self-storage. In urban and suburban areas where growth is favorable for new projects, finding a 5-acre site on which to build may be impossible. Vertical construction offers great flexibility to compete in markets where existing commercial buildings may have consumed the best sites with enough acreage for single-story construction.

In addition, sophisticated management and online-marketing platforms have allowed storage operators to drive new tenants to their locations, even when visibility isn’t optimal. This doesn’t mean visibility is no longer important; however, multi-story developments allow self-storage to gain visibility, even from a second-tier site.

Another benefit is new multi-story storage buildings are often fully climate-controlled, meeting the demands of today’s consumers. Climate control certainly isn’t a requirement of multi-story construction, however. Some operators choose to offer these premium units on bottom floors, while providing ambient space on upper levels.

Security can also be enhanced in multi-story. By limiting access to certain loading/unloading areas, security monitoring can be easier within a single structure. Tenant access can be restricted to particular areas or floors, and activity can be easily captured via cameras.

Finally, there’s facility aesthetics. I’d be remiss if I failed to mention how much more attractive multi-story buildings are compared to the basic metal construction that has been the industry standard for so long. Building larger, more prominent facilities give developers an opportunity to set the new business apart from competition with features that appeal to tenant demands for quality and security.

Cost Considerations

It’s true that going vertical adds cost to a development. Smaller sites can also present unique challenges in terms of building timeline, erosion control, and construction coordination and staging. Still, multi-story projects are often the most economical.

Multi-story buildings generally have smaller average unit sizes than their single-level counterparts and are often heavy on 5-by-10s, 8-by10s and 10-by10s. Even the addition of a multi-level building on a larger site can improve overall efficiency and net income. In locations where large spaces or RV-storage units are in high demand, a multi-story building combining smaller units with larger, single-story, drive-up units can push net rentable square feet and income higher without overbuilding.

Keep in mind, too, that multi-story facilities aren’t just for small urban or suburban sites. A 4-acre site, for example, might hold a total buildable footprint of 80,000 square feet; but a three-story, 50,000-square-foot building in addition to 50,000 square feet of drive-up storage space yields more rentable square footage. The gem of this approach is the ability to add larger spaces to the overall unit mix, while competitors are stuck adding smaller units like 5-by-10s and 10-by-10s. For developers willing to push the envelope in terms of rentable square footage, larger units might make it easier to attract more long-term tenants.

Buildings with more than three stories require fire rating on structural elements, which adds considerable cost (as much as $10 per square foot) to the overall budget. Investment analysis almost always compares the lower cost and fewer units of three-story construction against the added building cost per square foot and subsequent higher revenue of adding rentable space with additional levels.

Project Challenges

Developers considering ground-up multi-story projects should understand that vertical construction, while generally efficient as an investment, presents unique challenges. First, staging is often an issue. Small sites don’t have a lot of space for materials. Traffic control can be necessary to get materials and workers into and out of a tight site; however, experienced general contractors understand and plan for these demands. The liquidated-damages sections of your contract should specify reasonable timelines that require the contractor to plan for weather, transportation and general construction delays.

Placing the roof on a multi-story building is a key milestone for the builder. Once most of the structure is protected from weather, trades can begin to work comfortably and effectively. Challenge your contractor to investigate and price different methods of construction that can result in your building being under roof and dried-in as quickly as possible.

Another important consideration is comfortable access. In multi-story environments, the elevators are the main access point for tenants above the first floor. Designers should consider how units are accessed to avoid loading/unloading bottlenecks, and take care to create comfortable space around elevators. In most cases, more than one lift is necessary. If your lone one breaks, so does the whole operation.

Though not all projects are created equal, when elevators are added, you should automatically consider a third floor because it doesn’t dramatically impact cost per square foot. Anything more than that, though, changes everything. The overall construction type alters once you exceed three floors, requiring additional fire rating and driving up costs. A creative way to deal with this is to add a partial mezzanine to the first floor. Building codes allow something like 30 percent of a floor to be covered with a partial mezzanine. For a drive-through facility that requires a first level of maybe 18 feet high, this can add rentable space without dramatically impacting the overall cost per square foot.

Materials can also present a challenge. Steel and exterior sheathing can be primary cost drivers. Glass, metal, brick, block, EIFS (exterior insulation and finish systems), insulated panels, roof style and design all factor into the investment weight of these projects.

With political discussions of trade wars and tariffs, costs are volatile. A three-story building that might have been built for $60 per square foot in 2016 might be as much as $70 per square foot today. Those figures aren’t carved in stone, though. The volatility of the international market means everything could change tomorrow! Regardless, the uncertainty around costs must be planned for by the contractor and investor. External market forces and construction costs require developers to carry larger contingencies in their development budgets.

Even with all the potential challenges, the self-storage industry will continue to erect more and more multi-story buildings. You’ll find them precisely where market demand meets profit.

Benjamin Burkhart is owner of StorageStudy.com, which provides feasibility studies and development consulting to self-storage developers and owners nationwide. He can be reached at 804.598.8742 or [email protected].