Katrina, Matthew, Michael and Sandy are more than just names. They were destructive hurricanes and storms that destroyed homes, lives, communities and businesses, and wreaked havoc on infrastructure that cost billions to repair. Chances are many of you were directly affected by one of these events or knew someone who was. The fact is we could all be impacted by climate change in the future.
As with so many global issues, there are many perspectives on this topic, and this article isn’t meant to change anyone’s thinking on the matter. But as the subject of extreme weather appears in news headlines daily, I thought it would be interesting to explore how it might relate directly our industry.
Customer Mobility and Migration
When operating self-storage in coastal and low-lying areas, hurricanes and floods are always a concern. It isn’t just the coastal areas at risk now, however. With the ever-increasing severity of weather and storms, the damage is reaching farther inland than ever before. In the last several years, many properties have become victims of flooding, hurricane, tornados and the like. Add to that the oppressive heat, no longer restricted to the Deep South but widespread throughout the nation.
Aggressive weather events have advantages and disadvantages for self-storage operators. On one hand, community displacement from natural disasters creates a need for storage. However, as areas like the South fall victim to tropical storms, hurricanes and flooding, migration into those regions have slowed and their ranking as a desirable destination diminished, according to a study from United Van Lines. This could mean a dwindling customer base for facilities there.
This restriction on human mobility is a very damaging effect of climate change for self-storage. Mobility is critical to success in our industry, but the sword cuts both ways. If customers aren’t moving, they aren’t renting as much storage. At the same time, it could also mean we have greater tenant retention. In any case, climate change and extreme weather events will cause human behavior and mobility to change.
Expenses are another area where self-storage operators could be impacted as a result of changing weather. Typically, a facility’s fixed expenses such as insurance, property taxes and payroll are always among the larger costs, regardless of facility size or location. However, if the weather continues to be as severe and unpredictable as it has been in recent years, some of those expenditures could escalate even higher. It’s logical and probable, for example, that insurance policies and premiums could increase.
Unfortunately, my company has gained firsthand experience in this matter, as Mother Nature chose to target some of the regions in which we conduct business. Our premiums will increase substantially because all companies go through International Catastrophe Insurance Managers LLC for wind and hail coverage. Therefore, detection is inevitable, and premiums will rise rather significantly.
Of course, rather than just take the hit, there’s always the option and best practice to shop around for insurance each year to ensure your policy is competitive. While I’m far from an expert in the insurance field, I caution you to thoroughly dissect your policy against competing ones to ensure you don’t trade better coverage for a lower premium.
Another area that could be affected is utilities, specifically HVAC. Most storage operators have a paragraph in their lease titled “climate control.” It might state: “The climate-controlled spaces are heated and cooled depending on outside temperatures. The spaces do not provide constant internal temperature or humidity control.” The clause also states that an owner “is not liable for any growth of mold or mildew on the stored property” in the event of a mechanical failure, among other things.
While you may not be required to maintain a set temperature, you’re obligated to conduct good business practices and provide a certain level of customer service. That includes maintaining a cool building relative to outside conditions. With climate change, however, your buildings may not be able to withstand escalating temperatures. According to an article in the “Washington Post,” July 2019 was the hottest month ever recorded. In fact, “Scientists found that the planet is headed for one of its hottest years, and the period from 2015 to 2019 is likely to go down as the warmest five-year period on record.”
Let’s examine a likely scenario. Let’s say your facility is mature and has a mixture of climate-controlled and traditional units. Based on the age of the facility and its phases, some of the HVAC units might still have a warranty, but others don’t. Now, the facility has been beaten down by heat. To complicate matters, when it was built, air handlers were placed with the mentality that 1 ton covers 1,000 square feet rather than 2,500 square feet. So, not only have your monthly utility costs been compounded, your repair and replacement costs could be as well.
As an operator who recently replaced several 4- and 5-ton HVAC units, I can tell you the cost is approximately $4,850 each. If this scenario comes true for you and you aren’t actively servicing, planning and escrowing funds for this type of inevitable expense, you’ll be hit hard.
Infrastructure should also be a concern in self-storage. Excessive heat, sun, heavy rain and wind can be damaging to asphalt, doors and building façades. These things aren’t only costly to repair, they can be an eyesore that detracts from your curb appeal.
In the last several years, I’ve overseen several facilities that have been significantly affected by hurricanes and flooding. In some instances, the timing couldn’t have been worse for the owners, as they had their sites up for sale. Witnessing the challenges and working with them to overcome the devastation was difficult. These situations drastically reduce an owner’s options as few investors, if any, have an appetite to purchase an asset with that much risk. All you can do is focus on the repairs, hope the community and market rebound, and pray that buyers have short-term memories.
If an area is prone to bad-weather events, it may cause the customer base to rethink whether they want to rebuild and live there again. There may be mass relocation. While that may benefit businesses in the new destination, it undoubtedly damages the town the people are leaving and, therefore, the self-storage facilities that operate there.
No matter where your business is located, you should be aware of how today’s extreme weather could affect it. Look for vulnerabilities and act when possible to mitigate your risks.
March Chase is vice president and director of operations for Southeast Management Co., which provides self-storage management and consulting services. He’s worked in all aspects of the industry, from facility management to district management to director of operations. He’s served as vice president for the South Carolina Self Storage Association as well as vice president and president for the North Carolina Self Storage Association. He’s also a self-storage owner and investor. For more information, call 804.436.2596; visit http://southeastmanagementcompany.com.