There’s been a healthy migration to the self-storage industry over the past decade as investors and developers of multi-family, commercial and retail assets seek new and better opportunities. This means there are a lot of newcomers to the market.
Though the storage business may seem simple to outsiders, it’s actually quite nuanced, and the learning curve can be steep. If you’re a first-time builder, or an established owner looking to expand, there are two areas of the development process you must understand for your project to succeed. The first is site selection, and the second is the formation of your professional design and construction team.
Site selection is one of the most challenging, time-consuming aspects to self-storage development. Finding the right property involves a lot of important factors. I can’t cover them all thoroughly here, but following are a few primary focal points.
Location. Once thought to be pivotal to self-storage success, location has become somewhat less important due to advancements in digital marketing. Even facilities that are less visible or convenient can draw customers thanks to Google, mobile technology, search engine optimization, etc. Still, a well-designed, well-located facility will have every advantage. The additional exposure to drive-by traffic can only aid in filling units rapidly, while helping to command higher rates due to expedient access.
Zoning. The zoning process will vary from jurisdiction to jurisdiction, but most areas allow self-storage in commercial or industrial zones. Some municipalities have recently invoked moratoriums on new industry development, though they’re often temporary.
Many of the zones that allow self-storage by right tend to be buried off main highways, with little drive-by traffic. Generally, the more visibility you seek, the more difficult the approval process. You might face extended entitlement timelines related to discretionary approvals from politically driven commissions and councils.
When analyzing a location for self-storage development, the first step is often to submit a rudimentary site layout for pre-application review. Some cities have a formalized process for this, while others may conduct an informal review over the counter, or even via teleconference. The jurisdiction may charge for this process, but the fee is typically nominal. It’s well worthwhile, as it can provide a road map for approval, and useful insight to the opinions and thoughts of planning staff.
Demand. Choosing an area with plenty of people but few competitors will help ensure your new facility produces cash quickly. The commonly accepted measure of market demand is rentable square feet of self-storage per person, or per capita. To get this number, you divide the total amount of existing self-storage in the market by the total population. You can then compare this figure against national, state and regional averages.
Square feet per capita is generally a good indicator of demand and can provide valuable insight into how long it may take to lease up your proposed project. However, it shouldn’t be the sole factor in your decision-making. I’ve seen some facilities do extremely well in areas that exceed the average per capita.
Competition. Competition in the marketplace won’t only affect your lease-up time, it’ll impact your ongoing rental rates and, therefore, revenue. Several markets have recently suffered from an influx of new supply. When multiple projects come online simultaneously, it can result in a rate war as the new properties battle for enough tenants. It’s important to steer clear of this scenario. If you must go into a saturated market, make sure you find a marquee location with convenient access and build with a class-A facility design.
Once you’ve found your building site, it’s paramount to form a design and construction team with exceptional self-storage knowledge and experience. For first-time developers, nearly every lender will require professionals with a good track record. Too often, inexperienced consultants result in poor design, costly construction delays and frustrated lenders/investors. An ill-fashioned facility that functions poorly will damage the bottom line, so it pays to spend more upfront on the right support. You don’t want to amortize mistakes over the life of your business.
You’re going to need an architect, an engineer and a construction manager, at a minimum. Self-storage is a specialized product that requires everyone involved to possess a full understanding of the business and how a facility should perform. When vetting team candidates, consider the experience of key individuals, not just the company as a whole.
One hire that can be vital to a new self-storage developer is an experienced third-party management firm to run the facility once complete. It’s important to include this partner early in the process, as it can help hone your unit mix to suit the surrounding market. It should also be able to provide great insight to the costs associated with operating self-storage in your area. Hiring an experienced management team is a must, especially for your first facility. It’ll be money well spent.
The moral of the story is you shouldn’t underestimate the intricacies of self-storage development. Small errors can have a lasting effect on facility success. Acquire knowledge, ask questions and hire the right team. There are creative professionals who can help lessen the learning curve. Self-storage can be a lucrative investment if approached with the right support and a willingness to learn along the way.
David Meineke is vice president of Jordan Architects, a design firm that specializes in self-storage, custom residential, hospitality, land planning, multi-family and retail projects. He has more than 14 years of experience in self-storage design and development. A member of the national Self Storage Association’s Young Leadership Group, he holds a bachelor’s degree from the University of San Diego and is an associate member of the American Institute of Architects. For more information, call 949.388.8090; visit www.jordanarchitects.com