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Can’t-Ignore Factors to Self-Storage Site Evaluation: Market Supply, Zoning and More

Can’t-Ignore Factors to Self-Storage Site Evaluation: Market Supply, Zoning and More
Land for self-storage development is scarce and sellers hold all the cards. This can lead owners and builders to bad investment decisions. The author provides advice on two critical aspects of site evaluation: market supply and zoning restrictions.

Developing a self-storage facility can be overwhelming, especially if it’s your first. Between land acquisition and construction costs, you’ll be investing potentially millions of dollars. Moreover, the market for available parcels is quite possibly the most competitive we’ve ever seen. These factors combined can lead to brash decisions and catastrophic results.

Thankfully, with thorough research and the right team of experts, you can overcome the complexity of the project to build a successful, lucrative business. Following is advice that may help you triumph in one of the most critical steps: evaluating parcels of land for purchase. Let’s look at it from the perspective of market demand and zoning considerations.

Market Demand

This is the starting point. Identifying an underserved self-storage market with high occupancies, rental rates and population density is paramount. A market with plenty of potential customers and few competitors will ensure your new facility produces cash quickly.

The commonly accepted method of determining self-storage demand is to measure the amount of rentable square feet per person (capita) in the area. You need to know the total population and competitors, and then compare those numbers to the national, regional and state averages. While imperfect, this approach generates a decent indicator of demand and can provide valuable insight to the time it may take to fill your self-storage units.

Pay close attention to local competitors, as they can affect your lease-up time and market rate. In less sophisticated areas, it’s common to see older facilities operating at 100% occupancy, which leaves little room for increasing rental rates. These properties are typically owned by smaller operators with less experienced management teams. They don’t understand that keeping a 5% to 10% vacancy allows you to boost rates for new tenants while maintaining a comfortable cash flow from existing tenants.

It’s also critical to watch for other incoming development. There are many markets struggling with an influx of new supply from developers who haven’t done their homework or have deep pockets to cover an extended lease-up period. If there are multiple projects coming online in your chosen market, it can incite a rate war as these facilities fight to get tenants and reach stabilization. Steer clear of this scenario.

In general, hire a consultant to conduct a feasibility study of your desired market, especially if you’re new to the self-storage industry,. There are numerous companies that offer these services, and they’ll help you avoid bad investment decisions.

Zoning Considerations

Land acquisition has been difficult over the past couple of decades, but it’s much more complex now. When you factor in a hot market with cash-heavy buyers, you’re going to fight for quality sites. And in this competitive environment, sellers can force an extremely short due-diligence period, which gives you less time to evaluate a potential purchase. One thing you must make time to examine, no matter how tight the acquisition timeline, is zoning.

Requirements for approval can vary greatly from one jurisdiction to another. Unfortunately, many of the zones that allow for by-right self-storage development are buried in industrial areas or heavily encumbered by easements or other constraints. This typically pushes owners and builders to sites that have discretionary approval processes—neighborhood review, design review, conditional-use permit, etc.—and, therefore, longer development timelines.

The other problem that can arise is if any of the discretionary steps present insurmountable obstacles, it could prohibit you from building the most financially viable project. If there are any concerns about the zoning, it’s critical that you negotiate the longest possible due-diligence period to flush out potential problems.

While once a pivotal aspect of site selection, visibility (i.e., better location) has become somewhat less important in the light of online marketing. However, a significant portion of new self-storage customers still come through drive-by exposure; so, it’s still a factor to consider. Many jurisdictions have a hard time allowing storage facilities on high-profile sites because they don’t generate significant jobs or sales-tax revenue. Still, with the right team in place, you can nab these desirable parcels.

It also helps if a site can’t reasonably accommodate a traditional commercial or industrial use. For example, easements can make it virtually impossible to create a viable commercial layout. Self-storage, though, has flexibility. It can work where many other product types can’t. Even if the easements restrict your building coverage, you can still produce income with outdoor vehicle storage, whereas another type of project might be forced to use an excess of landscaping or parking area.

Finally, traffic impact can also work in your favor with the municipality. In dense commercial areas, the infrastructure may be taxed to a point that introducing additional uses would be devastating. With its notably low traffic count, self-storage can add a valuable service for the community while having a limited impact on surrounding streets and public resources.

Lean on Experience

Self-storage continues to be a hot commodity, but the lack of available sites is forcing the hands of many developers. This causes them to make ill-informed decisions without proper due diligence. To avoid problems that can derail your project, you need a team of practiced professionals to guide your decision-making, from market review to zoning, design to construction. Consult with them early in the process.

Self-storage development comes with risk. However, that risk can be mitigated with an experienced team of architects, engineers, designers and builders. You’re exponentially more likely to succeed and far less likely to produce an inferior product if you’re open to the knowledge and skill of others. As with everything, education is paramount to success. If you’re reading this article, chances are you’re on the right track.

David Meinecke is vice president of Jordan Architects, a design firm that specializes in self-storage, custom residential, hospitality, land planning, multi-family and retail. 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; email [email protected].

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