This is Part 2 of a multi-part series on investing in Self Storage assets.
Today, there are so many state-of-the-art self storage facilities across the country, that it is hard to believe that less than 50 year ago, this was basically a “Mom and Pop” industry. The lack of information on the industry, that is how to build and operate a storage facility, in the ’60s and ’70s forced these small owner-operators to rely on their own business instinct to provide what the local community needs.
But, there was a big advantage for those early entrepreneurs. They had virtually no competition in their marketplace. The customer demand for self storage units was significantly higher than the supply.
Today, the business environment for the industry is completely different. There are still many small owners that only own and operate one site. But there are many large self storage companies that own and operate site across the country. Therefore, the industry is much more competitive. This means that to be successful investing in self storage, one needs to stay informed about the competition, the pricing in the local marketplace and resulting supply and demand dynamics.
What is Self Storage?
This basically includes any facilities offering space in a building where the tenant applies their own lock and has sole access to the unit and pays rent on a month-to-month basis. The customer uses the space to store their own goods. At no point does the owner-operator take custody or control of the customer’s goods. In the past, many types of structures have been converted from warehouses, car dealerships, and other prior-use buildings. This continues today, but the most common type of facility is specifically designed for the purpose of storing a customer’s goods.
Typical storage units can range from 5′ by 5′ to something as big as 15′ by 40′. At one time in the past, I had a 10′ by 30′ unit that I used to store my boat in. The average size of a self storage unit is 10′ by 10′ or 100 square feet. Many facilities also will offer outside parking for RVs, boats and other large vehicles.
They also come in a variety of building types and amounts of land used. In rural and suburban areas, they often are laid out across 2-5 acres with several one-story buildings with drive-up access to each unit. They usually will have a good mix of sizes for customers to choose from and have large roll-up doors for ease of access.
Newer designs include multi-story buildings in denser areas of cities with large elevators and wide interior hallways. Often times they are climate controlled. They usually provide large drive-up areas for loading and unloading, dollies and furniture carts for moving in and out, etc.
Another trend in the industry is to renovate and convert existing buildings into self storage. Think about a small 3-5 story suburban office building that can no longer attract enough office customers to work. Or think about a retail center with several large box store spaces that can no longer work financially. Both of these types have been re-designed and converted into self storage. This can also work for old warehouse space.
Other aspects of self storage include surveillance cameras for security, automatic gates with keypad access, completely fenced, occasionally individual door alarms, and a small store in the office with various types of moving supplies and oftentimes are managed by a live on-site manager.
There are also ancillary income sources that can be incorporated to increase your revenue sources, such as private mailboxes, cell towers or billboards.
Self Storage is becoming more competitive but there is still a lot of opportunity available across the country. In the future posts, I’ll cover more aspects of the self storage industry.