An Island of Opportunity: Exploring the Budding Self-Storage Market in Guam

The island of Guam lies in the North Pacific, just across the dateline. It’s about 3,800 miles southeast of Hawaii and 5,800 miles west of San Francisco. The largest of the Mariana Islands, it comprises 212 square miles.

Guam was discovered by Ferdinand Magellan in 1521 and remained under Spanish rule until it became a U.S. Territory in 1898 after the Spanish-American War. Officially, it’s “where America starts its day.”

The demand for self-storage has grown in this market, due to several factors:

Most self-storage facilities in Guam are concentrated in and around Hagatna, the centrally located capital. This area is ideal for development, as it’s where businesses and government offices are located. Tumon, a district along the island’s northwest coast, is dense with apartments and condominiums, hotels, and even a mini “Rodeo Drive” of luxury. Many Far East travelers vacation here, as it’s quieter and often less expensive than Hawaii.

Like many burgeoning self-storage markets, Guam offers opportunities and challenges to those who would develop, invest and operate facilities there. Let’s explore what they are.

The General State of Self-Storage in Guam

There’s a wide range of self-storage types in Guam, from first-generation, drive-up sites to sophisticated, climate-controlled facilities with all the bells and whistles. There have been many attempts to recreate the storage experience of the U.S. mainland, but many local developers haven’t put their heart and soul into important factors including construction techniques, site security, the customer experience and general curb appeal. They’re inexperienced, simply using self-storage as a sideline business to fill empty buildings and space around their primary companies. In fact, most self-storage projects in Guam are converted from former offices or warehouses.

Unfortunately for less experienced facility operators, Guam residents have become better educated about their self-storage options and know what they want by way of quality. Renters will often bypass the older, less professional properties for those that are secure and offer climate-controlled units that can protect their goods from the region’s high humidity. All the best sites have waiting lists despite high rental rates.

The other notable challenge faced by self-storage operators on the island is tenant delinquency, as there’s no strong lien process. There’s been movement by the bigger companies to find a solution; but right now, it’s a somewhat complicated process to resolve delinquent accounts, and an operator often requires legal help to ensure their business remains in compliance.

Self-Storage Development in Guam

Guam has limited land available for self-storage development. What isn’t owned by the local or federal government is largely owned by the local population. Land prices range from $175 to $300 per square meter, making ownership difficult. There are leaseholds, but that adds another expense factor to the equation.

Due to the cost of land, it’s often easier to buy a building for conversion than attempt ground-up construction; but that’s if you can find one that yields enough net rentable square footage, which is very difficult. According to a local builder with whom I spoke, construction costs range from $250 to $260 per square foot. Ultimately, the cost of land plus construction creates a huge barrier to entry in Guam.

This is all before dealing with local planning departments, which is a shot in the dark. Often, they mistakenly think the property will have heavy traffic, when in reality, few people will visit the property each day. This lack of self-storage experience can often get in the way of a good design, whether for a conversion or a new build. One developer was required to have a 600-gallon water tank on site in case of fire, despite being on a major city waterline!

A Bright Outlook

Though the Guam self-storage market isn’t without its challenges, there’s tremendous potential on the island. Given the high government and military pay and the abundance of mid- to high-income families, high rental rates are no concern, and there’s plenty of demand. Development is certainly possible for those who can afford a heavy investment in land and construction costs. You simply must consider whether you can achieve an acceptable return on investment.

Andrew Kelly Jr. is principal of Sierra Self Storage Consulting LLC, which was founded in 2004 to help new and existing facility operators enhance their return on investment. The company offers brokerage and due-diligence services, consulting for new development, facility audits, owner and staff training, and property management. For more information, call 520.323.6169. To reach Andrew, email [email protected].