Today’s Biggest Impediments to Self-Storage Development, Plus Expert Advice for Circumvention

What are the biggest impediments to self-storage development today? This is the question tackled by four experts in the field, who explore the current industry landscape and shed light on the impact of interest rates, construction costs, code updates and other essential factors. They also share advice for finding project success, regardless of challenges.

Katherine D’Agostino, Founder

June 3, 2024

5 Min Read

If you’re looking to build a self-storage facility soon, you won’t find your path clear of obstacles. Regardless of the development boom the industry witnessed over the past couple of years, there are significant impediments inherent to the approvals and construction process. Below, four experts in the field address what these challenges are and provide advice for pushing forward to project completion and financial success.

High Interest Rates

With interest rates skyrocketing after years of stability, some self-storage projects are becoming financially unfeasible. In response to economic uncertainty the higher rates create, banks are adopting more stringent approval requirements, adding layers of complexity to the finance process. Both factors are leading to a shift in development strategies.

For example, David Langendorfer II, a developer at Signature Storage Investments in Ohio, acknowledges the difficulty of starting a new project with an acceptable debt-service coverage ratio in today’s environment. His company is adapting by implementing smaller, more manageable construction phases and using higher collateral to mitigate prepayment penalties.

Angie Guerin, vice president of business development for MakoRabco, which specializes in self-storage design, supply and installation, adds that last year’s surge in development was an anomaly, and the industry is now adopting a more traditional pace. “It just lends itself to that discussion on going through the feasibility process a little bit more robustly right now, and making sure that you’re building in a market that is going to support the development of those dynamics at play,” she said.

The Cost of Labor and Materials

Among the challenges that are impacting self-storage construction timelines and budgets—and, therefore, project feasibility—is the high cost of labor and materials. The supply chain has been stabilizing, and some basic material prices such as steel have come down substantially over the last two years. However, the costs of concrete and labor remain high.

“Shipping costs have come down, but there’s a shortage of skilled trades, which is what we need for self-storage,” Langendorfer says. “It’s really affecting the construction. There are a lot of things that aren’t starting until interest rates and labor costs come down.”

Guerin doesn’t see a profound softening in labor costs on the horizon, however she does believe they’re going to stabilize this year, albeit at a higher cost per square foot than in the past. One way to alleviate the pressure is to hire experienced engineers and architects at the outset of construction. Projects overseen by seasoned professionals tend to be more financially viable, as the team members supporting them use their deep industry insights to navigate complexities and streamline processes.

Ted Culbreth, vice president of sales and marketing for self-storage building company SBS Construction, agrees, adding that having a strong team in place from the beginning stages of development can minimize development time; and delays are often the costliest part of a project. Engaging with consultants who have specialized knowledge in self-storage can yield significant long-term savings by avoiding costly redesigns and structural inefficiencies.

“I would recommend finding a civil engineer who has local contacts and getting a storage architect who has worked in the area,” Culbreth says. “It should be a very seamless process of handing the project from the developer to the civil engineer to the architect to the general contractor to start construction. Have weekly meetings with the project managers to see what they’re going to be doing in the next three weeks or next month, which can help identify a problem when it’s in its infancy.”

Codes and Regulations

Changes in building codes and environmental regulations can also introduce obstacles for self-storage developers today. Many states are adopting higher energy-efficiency standards or stricter zoning requirements. As a result, anyone interested in building needs a proactive plan to ensure compliance without compromising project feasibility.

Jamie Lindau, national sales manager at Trachte Building Systems, a manufacturer of steel self-storage buildings, says approvals take an average of nine months, so it’s important to understand the market and where a project might be feasible. “It’s easy to find sites that would work, but the city won’t let you [build]. It’s already happened in most states, so I think most people would just appreciate the reassurance that [the requirements] won’t change again soon,” he says.

There are instances in which building codes serve to benefit the self-storage industry. For instance, recent leniencies allow for a more favorable structural configuration. This means developers have more flexibility in their project designs. For example, they might be able to build a four-story facility rather than three.

A Proactive Approach

There continue to be obstacles to self-storage development, and success requires a nuanced understanding of interest rates, materials costs, labor dynamics, regulatory frameworks and other factors. The good news is there are proactive strategies you can leverage to ensure financial viability. By embracing innovation and the support of experienced professionals, you can effectively navigate challenges and optimize project outcome.

Katherine D’Agostino is the founder of Lincoln, Nebraska-based Self-Storage Ninjas, which provides feasibility consulting and reports for the self-storage industry as well as for boat/RV storage, flex-warehouse space, storage condos and contractor yards. A former marketing-communications executive, she’s written hundreds of reports for facility owners across the United States, enabling them to make informed investing decisions. She’s also a frequent speaker at self-storage events and an experienced property owner and developer, with three self-storage facilities in Nebraska and boat/RV-storage facilities in Illinois and Texas. To reach her, call 402.570.5021; email [email protected].

About the Author(s)

Katherine D’Agostino

Founder, Self-Storage Ninjas

Katherine D’Agostino is the founder of Self-Storage Ninjas, a feasibility-analysis firm delivering unbiased reports resulting in facilities with high occupancies and the highest possible returns. Contact Sensei Katherine via her website, www.selfstorageninjas.com.

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