By Jay Fitzgerald
Reprinted with permission from "SpareFoot Storage Beat.”
Self-storage construction spending surged last year by 73.3 percent across the United States, breaking the billion-dollar mark for the first time since 2008. Total “mini-storage” construction, as the U.S. Census Bureau refers to the sector, was valued at more than $1 billion last year, up from $584 million in spending in 2014, according to the latest government data released in early February.
Commercial Construction’s Fastest-Growing Segment
Last year’s growth, albeit coming from a much lower dollar base compared to other private-construction categories, still made self-storage the fastest-growing construction sector within the U.S. commercial market in 2015. The services/parts sector saw the second-highest growth in construction in the non-office commercial space, hitting $2.8 billion in 2015, a 34.8 percent increase over 2014, according to data.
The self-storage sector’s growth rate was the fourth highest across all private-construction categories last year, with transportation equipment growing by 139 percent, sports facilities by 109 percent and chemical manufacturing by 81.2 percent, according to non-seasonally adjusted data from the U.S. Census.
Riding the Wave
Some players within the self-storage construction industry don’t need government figures to tell them 2015 was a solid year for the industry. “I’ve seen it boom, I’ve seen it dead, and now I’ve seen it come back,” says John Bull, owner of John Bull Builders LLC, a Portland, Ore., builder of storage facilities.
The company expects to double its revenue in 2016 with projects in California, Nevada, Oregon, Tennessee and Washington. Plus, about 250,000 square feet of construction is already lined this year in Memphis and Nashville, Tenn., as well as Portland. Another 55,000-square-foot facility in Washington is “in the pipeline,” Bull says. The firm’s payroll has jumped from 2 to 36 employees in the past two years.
The uptick in new construction, which includes major expansions at existing self-storage facilities, can be felt throughout the self-storage supply chain. “Business has been tremendous,” says Caesar Wright, president of Mako Steel Inc., Carlsbad, Calif-based company that designs, installs and supplies steel buildings for the self-storage industry.
Wright estimates his business experienced 50 to 60 percent growth last year. Demand for Mako’s products and services is particularly strong in the Pacific Northwest. “Even our state of California has rebounded. It’s been quite busy,” Wright says.
Most orders are for relatively large facilities in the 60,000- to 80,000-square-foot range, though Mako recently landed a deal for a 155,000-square-foot facility in National City, Calif., just south of San Diego.
Wright and others attribute the heightened activity to an improving economy, strong demand and tight supplies, and the easing of credit constraints. “Lenders are getting a little more lenient,” he says.
Too Much Hype?
Although new construction is on the rise, some in the industry remain cautious about the numbers being reported. Actual start-to-finish construction activity may be “less than what many people think,” says Jeff Norman, senior director of investor relations for Extra Space Storage Inc., a self-storage real estate investment trust and third-party management company.
Many development plans are often derailed or delayed, for whatever reasons, after building permits are issued. “There’s more plans than actual construction out there,” says Norman, who generally agrees with a recent estimates by commercial real estate firms that new construction will continue to grow at a moderately strong pace. Last year, Extra Space purchased seven newly developed storage facilities, up from just two the prior year.
The number of new facilities under development jumped to about 300 to 500 last year, up from a little more than 100 in 2014. This coming year could see construction of 500 to 600 new facilities, Norman says, citing a report from CBRE Group Inc., a commercial real estate firm.
That’s still way off from the torrid pre-recession pace of an estimated 2,500 to 3,000 annual new facilities built in the years leading up to the Great Recession. “We’re still far, far short of that rate,” Norman says.
In many parts of the country, it’s still hard to find affordable land in good locations, secure necessary zoning and building-permit approvals and, above all, land financing, he concludes.
Jay Fitzgerald has more than 20 years of experience covering business and economics for publications and websites, with a growing emphasis on blogs, podcasts and social media. Based in the Boston area, he’s written for "Boston Business Journal," "The Boston Globe" and "Boston Herald." He’s also a contributor to "SpareFoot Storage Beat."