What’s in storage for you?

MB-Mini-CentrlStatesStorage3.jpgWith more than 51,000 facilities and 2.2 billion square feet of rentable space now under roof, self-storage in America has become a $22 billion-a-year industry. The Self Storage Association reports nearly one in 10 households rents a storage unit, up from one in 17 just a dozen years ago. And rising demand is fueling more construction, as entrepreneurs are drawn by average yearly gross revenues of more than $441,000 per facility.

Rural builders who want to tap into self-storage construction may be encouraged by two key points in the SSA data. First, self-storage remains a largely mom-and-pop business in which 80 percent of operators own just a single facility. Though a few large companies have emerged, the nation’s Top Ten self-storage operators control only 12 percent of the locations.

Second, nearly half of SSA members believe their own local market is overbuilt, but a similar number believes self-storage construction opportunities remain in other parts of their states. Some 88 percent of urban operators and 73 percent of suburban self-storage owners report keen competition in their areas. But 41 percent of rural facilities count only two or fewer local competitors.

However, compared to U.S. average of 43,000 square feet, the size of rural self-storage facilities is on a smaller scale. General manager Blake Robinson of Central Storage Works, a manufacturer of turnkey self-storage facilities, suggests that 3,000 to 8,000 square feet are typical for a rural operation. “Mom and pop might begin with 20 to 24 rentable units in a 30×100 building,” he notes, “while the upper end of rural facilities might be a 48×200 building.”

At Trachte Building Systems of Sun Prairie, Wis., national sale manager Jamie Lindau similarly reports rural self-storage facilities generally range from 50 to 100 rental units. Moreover, rural builders are more likely than their urban counterparts to find self-storage work as subcontractors. “To save money,” he explains, “I’d say about 80 percent of facility owners in rural markets act as their own general contractors.”

Lindau is bullish on rural self-storage. While the rate of new construction in urban areas has slowed or leveled off, he confirms, “We’re seeing strong and consistent growth in rural markets.” That motion is seconded by Ryan Hill, business development manager for Liberty Building Systems, a subsidiary of Butler Manufacturing based in Selmer, Tenn. Liberty makes a broad array of metal buildings, he says, “but self-storage is our largest area of growth.”

What’s Being Built
The story in rural self-storage is not simply that more facilities are being built. As Lindau explains, “Most consumers today aren’t completely new to self-storage. They’ve rented units a few times in the past. So they’re beyond being dazzled by the basic concept.”
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Consumers’ growing sophistication, in both urban and rural settings, has raised their expectations. For example, Lindau reports some 60 percent of customers are women, which heightens the need for gated security, good exterior lighting, and bright interiors. “Climate-controlled facilities are also coming now to many rural areas,” he continues, “because customers don’t want their stuff to be ruined. We used to think it took a community of at least 50,000 people to justify climate-controlled storage. But now we’re seeing them in communities of less than 15,000 people.”

Further, since climate control permits customers to enter the building and access their units from the interior, fewer driveways are needed so more square footage can be constructed. And those climate-controlled square feet can command significantly higher rental rates, perhaps as much as 50 percent more than a standard unit.

“Rural self-storage facilities are becoming more sophisticated,” affirms Robinson, “and we’re now seeing some ‘hybrid’ projects in rural markets that mix exterior- and interior-entry units.” Hill has also noted the trend. “Though most rural facilities are still the standard exterior-entry type,” he states, “some rural operators may order a climate-controlled plus some standard buildings, to give their customers a choice.”

The self-storage industry in general remains a market largely served by metal buildings, rather than stick-built wood construction. Facility designs are typically laid out on 5-foot grids, with 5- or 10-foot openings for each rental unit and depths in increments of 5 feet. The emphasis on 5-foot increments not only simplifies owners’ income calculations, but provides standardization well-suited to metal buildings.

Nevertheless, simplified design and construction “doesn’t mean you’re going to necessarily get away with a simple ribbed-panel metal box,” cautions Robinson. “More cities and rural areas are getting particular in their permitting and design review process.” Because self-storage operations generate few jobs and sales tax revenues, local officials are now less prone to allow “another” facility in a prime location. And if they do, he warns, “The last thing they want is an eyesore.”

For that reason, building today’s self-storage projects often requires upgraded exterior finishes. “But then again,” suggests Robinson, “you can use that as an upsell opportunity when building a self-storage project for one of your clients.”

One industry trend which has not yet penetrated the rural market, manufacturers agree, is the national move toward multi-story facilities. Given the cost and scarcity of available urban land, self-storage operators in metro markets are building up rather an out. “Multi-story buildings are going into cities, not rural areas,” asserts Hill. “Also, it’s the larger franchises which are most likely to put up a multi-story facility — and the chains aren’t into rural markets.”

Still, Lindau does not count out the possibility multi-story buildings may come to smaller markets. “We used to think the threshold for a multi-story facility was a city of at least 500,000 people,” he states, “but now that’s come down to 150,000.”

By the same token, Lindau notes the availability of rural land has prompted some operators to construct multi-use projects. “A rural self-storage business can be tied into a convenience store, a car wash, an A-to-Z rental company, or really just about any business — including a construction business,” he points out. “In fact, people who can tie their self-storage to another business stand the best chance at making money. And since building contractors often have land and an existing customer base, self-storage could be a good sideline.”

This observation is confirmed by the SSA. For while the nation now boasts more than 51,000 facilities whose primary business is self-storage, nearly 8,500 additional locations report self-storage as a secondary source of revenue. Robinson notes facilities for self-storage of boats and recreational vehicles are gaining popularity in many rural environs.

Entering the Market
In addition to seminars and educational materials furnished by metal building manufacturers, three sources of industry information are available to rural builders who want to learn more about the self-storage market. SSA (www.selfstorage.org) sponsors numerous state affiliates, conducts seminars nationwide and stages annual expos in April and September.

“The basic things you must consider,” says Trachte’s Lindau, who himself teaches a six-hour seminar on the subject, “are land, visibility and traffic, zoning, layout and whether you plan to operate the business from an office or your home.”

Rural builders who would service the self-storage construction market likewise have some basics to consider. “Unless you cover the whole state, there’s not enough volume out there to specialize exclusively in building self-storage projects,” Lindau says. “At the same time, self-storage operators don’t usually hire just a general builder. So if you want to get self-storage construction work, your marketing has to let people know you can do those projects.”

Marketing efforts must also identify points of differentiation from the competition. For example, Lindau points out, “There aren’t any ‘standard’ self-storage buildings anymore. The design must be tailored to the particular property. That means you need a building systems manufacturer that’s flexible. And it also means you can separate yourself from competitors by offering a quality, turnkey facility.”

As the self-storage market grows in rural areas — and as independent operators think about expanding their square footage or building a second and third location — then more owners with established revenue streams may be willing to leave the general contracting to a local builder. Even so, admits Lindau, “Self-storage isn’t a high-profit-margin construction market. Compared to other metal buildings, the margins are low to moderate. ”

Nevertheless, performing self-storage projects does have an upside. “Let’s say the building is 20, 30, or 40 feet wide and 100 feet long,” explains Hill of Liberty Building Systems. “You can do the steel part in a week. Then after you hang the doors there’s not much interior finishing. So you can often get a little better profit margin on self-storage facilities than on some other metal buildings, since they’re not as labor-intensive. And you mostly just need screw guns. The need for heavy equipment is pretty minimal.”

For all these reasons, Robinson says, learning to erect self-storage facilities can be an easy way for rural builders to introduce themselves into the metal building market. “And if you do that,” he adds, “you can open yourself up to some new opportunities. Building brokers are always looking for experienced erectors.”

With the rise of steel prices in recent years, contractors may worry that self-storage projects can compel them to outlay substantial up-front money for building components — and then to finance the project until paid by the owner. Manufacturers say builders can get terms such as 20 percent down, with remainder paid to the manufacturer when materials are delivered. In turn, contractors can pass along these terms to their customers.

In the end, believes Robinson, the self-storage market does have one basic fact in its favor. “The demand for many other types of metal buildings may depend on the economy,” he explains, “but Americans, it seems, will always be running out of room for all the stuff they accumulate.”

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