What You Should Know About The Self Storage Business

With broad demand from residential and commercial customers, short construction times, simply designed structures and low overhead, self storage facilities are highly attractive real estate investments with significant …

With broad demand from residential and commercial customers, short construction times, simply designed structures and low overhead, self storage facilities are highly attractive real estate investments with significant upside potential. At the same time, while demand for self storage facilities is high, competition in the industry is increasing, and operators should carefully consider adopting alternative strategies and additional services to attract potential customers. See the following article from REIClub for more on this.

Self Storage Association Definition: Self Storage facilities are real property designed and used for the purpose of renting or leasing individual storage spaces to tenants who are to have access to such space for the purpose of storing and removing personal property. They offer rental on a month-to-month basis of individual spaces where customers provide their own lock and have sole access to their space. Today’s typical storage facility may comprise several one or two-story buildings on two to six acres of land, or a multiple-story building, containing a carefully designed unit mix of spaces. The units typically range in size from 5X5 to 10X30 feet with 30,000 to 120,000 total rentable square feet of space. Self storage facilities frequently feature large roll-up doors and drive up access to outside spaces and offer outside parking for storage of boats and recreational vehicles, which often can’t be stored in residential communities. Today’s facilities normally have the following features:

  • Contain 10,000 to over 100,000 rentable sq. ft.
  • Offer a wide range of unit sizes
  • Are well lighted
  • Are paved vs. graveled
  • Have storage units divided by steel, movable panels
  • May have some or all of their spaces climate controlled
  • Contain high-tech security systems, including electronic access, cameras, and digital video recording
  • Have perimeters that are walled or fenced with security gates
  • May or may not have a resident manager
  • Have single or multi-story buildings
  • Provide carts and dollies for use by its customers
  • May contain movable storage modules
  • Sell storage and moving related supplies
  • Provide ancillary retail services and products.

From the real estate perspective, self storage:

  • Meets the needs of several consumer groups (residential & commercial)
  • Uses simplified structures
  •  Makes efficient use of land, especially odd shaped parcels in less desirable locations
  • Has short construction time, thereby providing little traffic disruption
  • Uses very little energy!

History

The conventional concept of personal storage began in England when British banks were asked to safeguard valuables for clients embarking on extended voyages. Overcrowded vaults quickly forced them to seek storage lofts from drayage companies (the first moving companies). The first mini-warehouses for household and personal items were built. The two story structures were built with packing on the lower floor and private storage rooms on the second. Except for expansion into multi-story buildings, things remained the same for decades, until the 1950’s when costs rose. This led to construction of palletized warehouses which were designed to handle crated customer goods that could be stacked three levels high.

Access to household/personal goods was restricted and it was expensive, since customers had to make appointments to obtain items and pay each time for the service (stored property could only be reached by forklifts which were operated by staff) and business hours were limited and normally did not include weekends.

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Initial development of self storage facilities in the US occurred primarily in the Western United States and the Sunbelt states. Contributing factors were: a transient population moving to new jobs and better climate, retirement condominiums, apartment and townhouse residences, slab construction, etc.

Many facilities were developed prior to 1979, with 1978 generally acknowledged as one of the greatest growth years in the industry. As the decade of the 1980’s began, increased self storage construction activity occurred along the Eastern coast of the United States, with increased interest in Canada, Europe, Australia and other countries of the free world.

Self Storage Tenants

It’s been said that self storage is used by people and businesses in transition, but that’s only part of the picture. Self storage is used by a wide range of consumers with different needs that may include:

  • Homeowners and businesses in need of temporary space for overflow of property or inventory
  • Those in the process of relocating
  • Property stored in relation to an estate in transition due to death, litigation, restoration, etc.
  • Businesses in need of space for general control of inventory, records, supplies and equipment
  • Businesses that are expanding or contracting
  • Businesses storing seasonal displays
  • College students storing books, desks, etc. during summer
  • Military personnel in need of low cost space or are on temporary duty
  • Seasonal visitors with household items and sports equipment

The advantage of using rental storage space is increased flexibility, low cost, convenience, and value.

Self storage space is generally rented on a month-to-month basis and does not commit customers to long term leases. Tenants may typically leave whenever they want and rent only the space they need. A recent study shows that the average length of tenancy for a typical customer is 11 months, and 24 months for the average commercial tenant. The cost of self storage space is lower than office or retail space, saving users money. On average, self storage is roughly 60% less than the cost of most office on a per square foot basis. Self storage users can often find facilities in their local area and they receive additional service value because self storage managers are trained to counsel consumers on how to store items more efficiently in less space, thereby reducing the cost.

Self storage is a useful management resource for small businesses, since businesses can easily obtain more space as they grow without committing to expensive long term leases. Furthermore, it provides businesses with a means to cut costs, should they need to downsize. Self storage is also useful for college students and seasonal visitors who may rent space for a season, and for military personnel who go on temporary tours of duty, but intend to return to the area, and for those who can’t afford to rent more living space.

Today’s Market

Estimates of the overall number of self storage facilities operating in the United States varies greatly but most industry veterans estimate that there are somewhere between 45,000 and 50,000 facilities as of the date this went to press.

As the population becomes more familiar with self storage, the demand for off-site storage has expanded to accommodate the growing needs of the business community by storing files, medical records, excess inventory, equipment, etc. In some areas business storage accounts for 30% or more of the total tenancy of a facility. Easy access, convenient office hours, short term rental agreements, and no long term commitment to pay for space which may not be needed in the future, make the self storage facility extremely attractive to the retail customer, contractor, home based businesses, manufacturer’s, pharmaceutical representatives, etc.

The industry still remains relatively unsophisticated and highly fragmented. Today, roughly 75-80% of all self-storage facilities are owned by small independent “mom and pop” operators. In addition, there is a considerable amount of medium to large players undergoing consolidation, although it is becoming more difficult for the larger buyers to accomplish since most owners realize what a great low maintenance high-cash business it is, and therefore are reluctant to sell. As a result, the top 50 companies control approximately 25 percent of the square footage in the industry.

As demand for space has grown and the self storage industry has evolved, consumers have become more familiar with the property type (92% of the households in the U.S. were familiar with the concept, according to a survey sponsored by the Self Storage Association in 1989). Inasmuch, local and regional competition ranges from a handful of properties to scores in a given trade area. Accordingly, customers may choose where they will store and from many different options, with unit size and the choice of climate or non-climate controlled space being the base options. Today consumers have the ability to compare and choose from among a variety of self storage property styles and customer services to meet specific storage needs.

Competition in the self storage market is increasing. Maximum success for investors/operators depends on the ability to meet customer needs with convenience and value.

To satisfy customers, today’s self storage must look to locate in retail corridors, light commercial or even high density residential neighborhoods, in addition to traditional industrial and heavy commercial areas. Newer facilities emphasize architectural aesthetics in construction and are designed to blend in with the retail or residential nature of the areas they serve. Landscaping has also become a prime consideration, as well as the interaction of storage development with adjacent planned tracts of offices, retail stores and business parks, in order that incubator space is available to support public planning. All of this is done with the aim of creating a clean, stable, secure upscale image that supports the perception, and the reality of trust among current and prospective customers.

Scott Meyers, CSSM, is the nation’s leading self storage educator. He travels the country revealing why self storage has become the hottest sector in commercial real estate over the past 30 years that virtually nobody has heard about. Practically every real estate investor and entrepreneur has uttered the words “I’ve always wondered about self storage, I’ve heard those things were cash cows”. It was only after becoming a penniless millionaire in the single family and apartment business, and a near bankruptcy experience managing several hundred tenants and toilets that Scott asked himself that very same question. Scott is the owner and President of Alcatraz Storage® which operates several self storage facilities in the Midwest. Scott is a Certified Self Storage Manager (CSSM) through the National Self Storage Association and is a Certified Apartment Manager (CAM) through The National Apartment Association. He has been a real estate investor since 1993, and was an instructor of the Landlord 101 course through the University of Indianapolis. Scott Meyers speaks to investor groups nationwide but mostly enjoys spending time at home with his wife and 3 young children in Indianapolis, Indiana.


This article has been republished from REIClub. You can also view this article at
REIClub, a real estate investment education site.

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