That’s the One! Finding a Prime Parcel and Market for Your Next Self-Storage Build

Self-storage proved to be a resilient real estate segment during the coronavirus pandemic as well as the housing-market crash of 2008 and tech-bubble burst of 2000 to 2002. Because of this, it has become an attractive investment for large companies and individual investors alike. Some take the fastest way into the business, buying an existing facility or investing in a real estate investment trust. Some participate in a syndicated offering. Then there are those who are brave enough to try building from the ground up.

Whether you’re just entering the self-storage industry or are an existing owner or investor looking to expand your portfolio, a successful development takes a lot of homework. It begins with choosing the right market and the right location within that market. Not every site is viable, and you should know what to look for and, more important, what conditions to avoid. If you examine the following factors and discover that the project won’t provide the return on investment you require, you must be willing to walk away.

Location Characteristics

There are many aspects to finding the ideal parcel for a self-storage development, but location is obviously critical, from several angles. Consider the following:

Market type. Are you looking in a primary, secondary or tertiary market? In recent years, a lot of people have moved out of cities in search of a better quality of life. This means there could be increased demand for self-storage in smaller markets.

Zoning. This is critical. Is the property currently zoned for self-storage, or will you need to request a change? Will you need a conditional or special-use permit? Research the municipality and its requirements. Sometimes, local restrictions can make it impossible for a project to pencil out.

Keep in mind that if you need to request a rezoning or permit, you must build in the cost for the engineering and design before you get approval. Many municipalities use floor-area-ratio limits to curb mass. Others use height, area, impervious and lot-coverage limitations. Some even institute temporary or permanent moratoriums on self-storage for political or economic reasons. However, once obtained, a property with high barriers to entry will enjoy a lower capitalization rate, which can drive the return on investment to unprecedented levels.

Supply and demand. Pay attention to the existing self-storage competition in the region. Research the current supply, and determine average facility occupancies and rental rates. Remember to check for any new projects in the pipeline!

When considering a market, we’re typically looking for one that overall shows a low and sometimes even a negative demand based on all types of self-storage. However, if most everyone is experiencing high occupancy and it’s a market that’s drastically undersupplied in temperature-controlled units, for example, this could still be a viable location.

Demographics. Examine the local population and available housing to see if it’s increasing, declining or stagnant. The goal is to be in an area experiencing growth. Next, look at the household median income. Can your target customers afford the product you wish to build at the rates you need to charge to be profitable?

Visibility. Look at the traffic patterns and the roads from which the target property is visible. While your facility doesn’t necessarily need to be off a busy highway, it must be seen. This effort can be helped through multi-story building and signage.

Accessibility. Will your self-storage customers have easy access to the property? For example, if they can’t easily make a left-hand turn and must go around the block to enter your gate, they might look elsewhere. Your location should be simple to find and navigate.

Lot configuration and topography. Pay close attention to these, as they’ll determine how easy (or difficult) it is to get approval and lay out your project as well as how much self-storage you can build. They’ll also impact your construction costs.

Unusual parcel shapes that are less desirable for other real estate uses can sometimes help a self-storage project gain municipal approval. Still, you must ask yourself: How well will the site accommodate your desired design? How much grading is needed? Are there any soil or water-drainage issues?

Unit Types and Mix

One you’ve gathered all the above information for the market you’re considering, you can better determine the type of self-storage that might be needed. The options are many: traditional drive-up units, temperature- or climate-controlled units, single- or multi-story structures and, if there’s a need, boat and RV storage.

When designing the unit mix, don’t just use whatever makes the pro forma look the best. In a traditional “bankers mix,” the smaller the unit, the higher price per square foot you can realize. However, you need to understand what’s actually needed in the area. Ideally, when your facility reaches maturity of 85% to 90%, you’ll still have a few units available to rent.

Remember, too, there will be some aesthetic requirements to meet, and these aren’t only dictated by the municipality. Community members will also have input to what the look of the property should be. You want the locals to use your services but also to appreciate that you’ve built a great project in their neighborhood.

Site Selection and Feasibility

The self-storage industry is poised for continued growth. The interplay of financial dynamics, demographic shifts and evolving consumer preferences promises an exciting journey for owners, investors and developers. That said, a facility is a multi-million-dollar asset, and it must be placed with great care and consideration.

A feasibility study is highly recommended. Not only will it give you peace of mind, it’s often a requirement of most lenders and investors. It’ll help you determine market demand, the type of storage needed and the proper unit mix. This insight will allow you to make a proper decision not only on if to build but what to build.

Stephan Ross is owner of Cutting Edge Development LLC and a managing member of Cutting Edge Self Storage Management & Consulting. He’s been in the self-storage industry since 1984 and has performed hundreds of feasibility studies in the United States and Canada. He’s a contributing writer for industry publications and a featured speaker at self-storage events. To reach him, call 801.273.1267 or email [email protected].