Just about any kind of real estate can be turned into condominiums, including apartments, detached homes, offices, hotels, airport garages and even grain-storage buildings. Vehicle storage is no exception. The storage condo is an emerging niche within the rapidly growing market for RVs and boats. Condo development might be a good business venture to pursue.
While its shares the same basic purpose, condo-style vehicle storage differs in significant ways from the standard, rental model. First, vehicle-storage condos share many characteristics with office-warehouse or flex condos, including high and wide doors, high ceilings, wide aisles between buildings, climate control and security features. They may also be located in an industrial park or on land zoned for light industry. Where they differ from these other types of condos is at the high end, where there is more concern for security, finish and amenities. Of course, services specific to boats and RVs, such as dump stations, wash stations and maintenance and repair, should not be overlooked.
Several factors may lure you into the storage-condo business, including local market conditions. Many areas suffer from an acute lack of vehicle storage; others simply lack well-managed and secure space. In a market where demand for high-quality parking exceeds the supply, available spaces might rent for a premium. Hence, two market conditions supporting the development and sale of storage condos are an overall shortage of vehicle-storage space and high rents for quality vehicle storage.
Irrespective of market conditions, storage condos appeal to buyersand hence developersfor many reasons:
- Tax considerations of depreciation and other deductions
- Stable monthly costs (rents can and probably will rise over time)
- Asset ownership
- Appreciation potential
- Cash flow (for investors)
Buyers of vehicle-storage condos have some similarities with the buyers of residential units, but the question you may be asking is: How do buyers differ from renters in both cases? In the residential market, apartment renters and condo owners tend to be part of small households that are comfortable in multi-tenant living environments. Still, we need to know what motivates a person to buy rather than rent.
Residential condo buyers may be divided into five types:
- First-time buyers seeking an affordable opportunity to buy, motivated by benefits of ownership
- Working-age buyers preferring a low-maintenance condo lifestyle to a detached fee-simple house, with a preference toward luxury units and plenty of amenities
- Older move-down buyers seeking low-maintenance living
- Investors seeking cash flow, appreciation or both
- Buyers of second homes who want to be near a particular attraction
Are vehicle-storage condo buyers similar? Check out this point-by-point comparison:
- Some are seeking an affordable means to store their vehicle while gaining the financial advantages of ownership.
- Some may want the higher standards a built-for-sale vehicle-storage facility can provide vs. the standards at most rental facilities.
- The low-maintenance analogy is not good. A storage condo may actually require more maintenance than a rental unit. But the maintenance may be desirablea labor of lovein this case.
- Investors seek the same thing no matter the property type.
- Some buyers from afar may want to store their vehicle near their favorite touring area rather than near home.
Presumably, the demand for storage condos will be a subset of the total demand for space at vehicle-storage facilities, but how can we calculate the percentage of renters wholl become buyers? How does the prospective buyer of a storage unit differ from a renter? The most obvious answer is buyers are more committed for the long term, whereas renters go month-to-month. Some give up their storage space part of the year, while they are touring, for example.
Buyers are often more affluent, in general, although there is observed condo demand across a wide price range around the country. In addition, buyers may be consumed by the recreation lifestyle. Their passion drives them to invest a lot of money and time in it. Finally, and perhaps most important, they are more financially sophisticated, understanding the benefits of owning rather than renting.
The storage-condo market includes several specific segments: end users and buyers. The two primary end users of storage are RV and boat owners, as one would expect, and small businesses, which might be surprising. The latter are attracted by the design of the vehicle-storage unit, which is very similar to the design of typical office/warehouse space, and the opportunity to own rather than rent. The developer has the option to restrict buyers to just those intending to store vehicles, but many have found vehicle storage and small business can coexist quite well.
In terms of types of buyers, there are three basic segments: owners of RVs, boats and other vehicles, small-business owners, and investors. Investors might rent their units to either type of end user. The relative sizes of the segments will vary by location. There is also market segmentation by characteristics of the product, such as unit size, price and overall quality of finish and amenities.
Methods to measure the potential size of the condo market need to be developed for market and feasibility analysis, just as with traditional self-storage; but each market segment will require its own approach.
Vehicle owners. Some states (such as Washington) produce detailed reports on vehicle registration by type of vehicle and county, but many (including California) dont. A couple of third-party sources of RV- and boat-ownership data can provide detail by location, type, manufacturer, model and length, in addition to mailing lists of owners and probable owners.
Using these sources, we can create a detailed database of vehicle owners for any market area. This is the broad pool from which storage-condo buyers will be drawn. Only a small portion of RV and boat owners chooses to use a rental-style storage facility. And a much smaller proportion will choose or be in the position to buy condo storage.
Owners of other types of vehicles, such as collectible and antique cars, motorcycles and commercial vehicles, may also be in the market for storage condos. Owners of all these vehicle types will not only want a unit for storage, but for maintenance and light repairs as well. For some, units will be a home away from home, where they can pursue their hobby.
Business owners. Detailed information can be obtained from third parties showing the number of businesses in any market area by type of industry, sales, number of employees and related broad measures. The challenge is then to estimate the number that might be in the market for a condo for their storage and light office needs. In all likelihood, some overlap between small-business and vehicle owners will exist.
Investors. Demand by investors may be difficult to estimate, varying by how attractive the condos are as investments, competition for investment dollars and the number of affluent households in the area. A limit should be put on the number of investors who can buy into a project, as too many could have a negative impact on sales to end users. In most cases, investors will find storage condos attractive. In making projections of absorption, we might simply allow a certain proportion of the buyers (say 10 percent to 20 percent) to be investors, with end users making up the balance.
Dont forget to study your competition before entering into the market. In the process, youll likely encounter three basic types of competitors for storage condos in any local market:
- Other storage condos
- Vehicle- or self-storage facilities (rental)
- Light industrial buildings (for lease)
In all likelihood, storage condos wont even exist in the local area, but any within 50 miles or so might potentially be competitive. Survey their sizes, design, price, absorption, market orientation, etc. Condos farther away can also be studied if local market information is lacking.
The supply of space at typical for-rent facilities should also be analyzed, especially because theres a relationship between rents and condo prices. A low-rent market may have very limited demand for high-priced condos. The supply of rental units relative to demand may also influence condo price-setting, determining how well they will sell.
Business owners will compare annual costs to buy storage space with leasing fees. The leased light-industrial market should be surveyed for rates and supply to understand possible competition from this product type as well.
The storage-condo market might represent a profitable niche in many locales. But as in any real estate development, a careful study of demand, supply and financial feasibility is essential to success.
Jim Stratton has been providing market research and feasibility studies for real estate developers since the early 1980s. A substantial part of his work is in the self-storage industry. For more information, call 504.866.7696; e-mail [email protected]; visit www.stratton-research.com.