Future Investment Target? An Overview of the Self-Storage Industry in Central America

With demand driving an increase in self-storage worldwide, lucrative investment opportunities are emerging in many regions. Central America stands out as one with great promise. This article provides an overview of the local industry from the CEO of an operator with 16 facilities in the area.

Federico Rölz, CEO

May 31, 2024

4 Min Read

Central America consists of seven countries with a total area that is nearly the size of France. These are Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. The self-storage industry was born here during the mid to late ‘90s, and today, there are more than 100 facilities in the area. The countries that are most developed are Costa Rica, Guatemala and Panama. The ones with the least amount of storage are Belize and Nicaragua. 

Though it may be progressing at a somewhat slower place than in Asia or Europe, the self-storage industry is growing in this region. This can be attributed to several factors: 

  • Urbanization rates in Latin America are among the highest in the world. As more people move into large cities, living spaces become smaller, leading to a greater need for storage space. 

  • The middle-class population is expanding and has more disposable income, which drives significant increases in demand.  

  • Developments are limited to one or two cities per country, restricting the overall supply. 

  • The new hybrid work culture has accelerated the adoption of self-storage. People who work from home need extra space so they can create an appropriate home office. This has prompted some operators to expand their facilities or open new locations. 

Though there’s greater use of self-storage in Central America, we’re seeing a shift in our customer base. As economies in the region evolve and urbanization increases, the demand for storage has transformed from being almost completely commercial to a blend of residential and small businesses. The average customer split is about 50/50. That’s a major shift from 10 years ago when it was more like 90% commercial and 10% residential. 

Development 

Building regulations in Central America, specifically parking requirements, pose important challenges for self-storage developers and designers. In addition, high land-acquisition costs make it difficult to find viable development parcels. Developers of other types of real estate that permit higher-density construction are willing to bid higher for that land. These obstacles keep self-storage from flooding the market in the short term, which maintains a healthy ratio between supply and demand while the industry grows. 

When self-storage projects are built in Central America, they are often multi-story. Prior developments were single- or two-story drive-ups; however, due to much higher land costs today, it isn’t uncommon to find multi-story facilities of up to 10 floors on a parcel of only .3 acres. Buildings with four to six floors are most common. 

Most self-storage projects here are ground-up construction rather than conversions. This is because there’s increasing demand for purpose-built facilities that offer modern amenities and security features. In addition, modifications of existing buildings would rarely comply with updated parking and building-code regulations. 

Financing 

One of the most significant challenges facing the self-storage industry in Central America is financing, particularly in today’s higher-interest-rate environment. Local financial institutions haven’t fully grasped the industry, and term sheets usually require full amortization during the lifespan of the loan, which is typically 10 to 12 years. These terms require a larger working cap provision during stabilization and limits free cash flow.  

I encourage lenders in larger regions to expand into Central America. They could offer financing at higher interest rates than at home while operating in very stable markets where self-storage rental rates are all listed in dollars and economies are growing steadily in the range of 3 percent to 5 percent year over year. 

Awareness 

Product awareness remains a significant hurdle in Central America, as many potential customers are unaware of the benefits of self-storage. This obstacle requires industry players to invest in creative marketing campaigns and content to educate consumers. However, it also presents a great opportunity for growth, especially for well-established operators and those who have differentiated themselves from their competition. 

Predictions  

Looking ahead, as urbanization rates continue to rise and living spaces become smaller, the demand for self-storage in Central America will likely increase. Moreover, as the industry matures and awareness grows, more customers will recognize the benefits of using the product.  

I also see an opportunity for consolidation. Most operators in this region have a single facility; but as scale is important to achieve better returns, some will consider selling to larger players who are looking to expand. 

Technology will continue to play a vital role in shaping the self-storage industry in Central America, with further adoption of digital solutions and smart technologies. Though online rentals and bookings are not yet common, I believe they will be soon. 

Federico Rölz is CEO of Mr.[B] Self Storage, which has been in business in Central America for more than 25 years. The company operates 16 facilities in Costa Rica, Dominican Republic, El Salvador and Guatemala, and is expanding into Monterrey, Mexico. It’s portfolio consists of 592,000 rentable square feet, with plans to finish another seven projects comprising 290,000 square feet within the next two years. Since 2017, Mr.[B] has partnered with Metro Storage Latam, the international arm of Metro Self Storage. The company is seeking additional opportunities in Latin America. To reach Federico, email [email protected].

About the Author(s)

Federico Rölz

CEO, Mr. [B] Self Storage

Federico Rölz is CEO of Mr.[B] Self Storage, which operates 12 facilities in Costa Rica, El Salvador and Guatemala. With three projects under development, the company’s portfolio will soon comprise more than 592,000 rentable square feet. Mr.[B] is actively seeking expansion opportunities in the region.

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