From vacant big box buildings and urban infill locations to parcels in secondary markets or municipalities with high barriers to entry, there is no shortage of potential sites for self-storage developments. Nevertheless, not every plot is practical for a new self-storage facility. So, what differentiates a good site from a great one?
For starters, there must be demand for self-storage in the site’s market area, otherwise there is no point in building new product. And demand increases in areas with dense or growing populations. “We believe that population density trumps everything,” says Guy Middlebrooks, vice president of third-party management for CubeSmart Self Storage, a real estate investment trust with its headquarters in Malvern, Pa. “High population density is the best way to mitigate the risks of oversupply.”
Of course, it’s in everyone’s best interest to avoid saturating markets with new supply. Therefore, a feasibility study should be conducted to ensure that the area can absorb your proposed project. “We always refer developers to one of the experienced feasibility and market study vendors in the industry,” Middlebrooks says. “We suggest all sites should have a full study that includes a visit to the actual site and market. We believe that understanding the occupancy rates at existing storage facilities is key to determining if more supply is needed.”
Once it’s determined that there is in fact a need for additional supply in a given market, the best sites for self-storage development will be those that are highly visible, easily accessible, and located within a densely populated area.
Middlebrooks emphasizes that population is a key factor in selecting a stellar site for self-storage, stating that at a great site “75 to 80 percent of the customer base will live within a three-mile radius of the storage facility”. He adds, “The higher the population, the tighter that radius becomes.”
Bruce Jordan, AIA, president of San Clemente, Calif.-based Jordan Architects, Inc., concurs with Middlebrooks, adding that it’s best for a facility to be located within an area with more than 100,000 people living within a three-mile radius.
When searching for sites, there are other market specifics to consider in addition to its population. For instance, Tarik Williams, vice president of Gilbert, Ariz.-based TLW construction recommends looking for markets with high barriers to entry as they limit the number of competitors your potential facility will face. While those hurdles can be time consuming to overcome, it’s worth the extra effort.
“High barriers to entry are a good thing,” says Jordan, whose company specializes in obtaining approvals and knows how to go through the process. “They make it difficult for competition to enter the market.”
Obviously, the number of competitors within a market impacts the demand for new self-storage developments. Hence, it is imperative to thoroughly analyze an area’s current and future supply before purchasing a plot.
Additional market factors to take into consideration include rooftops and residential growth as well as demographics. Jordan mentions that high concentrations of multifamily dwellings, military bases, and college campuses are typically beneficial for self-storage developments as they have limited space within their apartments and/or utilize storage during the transitional periods in their lives. As for a market’s demographics, he reminds developers that customers’ ethnicities, ages, genders, occupations, income levels, and even traditions impact their storage habits. For example, Jordan recalls one terrific urban site in Honolulu that, despite its densely populated location with countless highrises and great visibility, took longer than expected to reach stabilization. “It opened when the recession started, and the Honolulu market just didn’t respond to it,” he says. “It didn’t follow the mainland rules. It made us nervous for a while.” Jordan notes that it was merely a nuance of the market of which they were initially unaware.
Visible And Accessible
Besides being located in a densely populated area, the site’s visibility is of utmost importance. First of all, the best plots are in close proximity to heavily traveled roadways to garner the attention of drive-by traffic. Jordan suggests looking closely at sites that are “highly visible from major thoroughfares or freeways” for developing self-storage.
Middlebrooks agrees, adding that a self-storage facility’s branding can assist with visibility. “Your signage and red corrugated doors should be visible to traffic,” he says. Upscale and eye-catching design elements can increase the facility’s prominence as well, but make sure to adhere to any restrictions or requirements put in place by the commissions that govern the municipality.
Keep this in mind: Self-storage facilities are more retail oriented than ever before, and they are thriving in retail/commercial locations. They are no longer hidden from view in industrial areas that are tucked away from the market’s residents. Jordan emphasizes that customers do not want to drive miles off the beaten path to access their belongings. Nowadays, self-storage tenants want the ability to swing by their unit on their way to or from work, school, and shopping. Therefore, self-storage facilities need to be developed in convenient locations.
Speaking of convenience, accessibility is another important element that needs to be evaluated before proceeding with a self-storage development. Per Jordan, sites on easy-access roads are favorable for customer convenience. Driveways and entrance areas should be easy to access for customers arriving from either direction on the main road.
In addition to visibility and accessibility, the best sites are flat ones without topography issues, says Jordan. Although there are plenty of clever strategies for developing self-storage facilities on sloped or uneven parcels, they can significantly increase the cost of the development, lengthen the development process, and impact lot coverage—all of which could ultimately make a proposed project unfeasible.
What’s more, when evaluating the plot, it’s wise to have environmental studies and soil samples taken before deciding to move forward with a project. While these are expenses that cannot be recovered if you decide not to pursue that location, it’s money well spent to avoid costly remediation in the event that contaminated soil or other obstacles are unearthed. Jordan notes that most issues that arise can be remedied, however some can cause an abundance of expensive problems that could impact the feasibility of a facility. For instance, at one site he had to work with environmental agencies to safely relocate protected species of nesting birds. Remember: All wildlife and vegetation should be identified and handled in accordance to the municipality’s ordinances from the get-go in order to avoid fines and setbacks.
Is It Viable?
Above all, even if a parcel hits the mark, it has to make financial sense. Williams advises developers to do the math prior to purchasing the plot. Besides the actual cost per square foot for land, the project’s utility expenses, property taxes, and revenue potential must be carefully calculated to ensure its viability. He proposes asking this question: Is self-storage the highest and best use relative to the price of the property per square foot? If the answer is yes, can enough self-storage (but not so much that you exceed demand) be built on the land to make it pencil?
The best way to answer those important questions is to hire an impartial third party to conduct a thorough feasibility study. “Spend money on a good, unbiased feasibility analysis with someone not connected to that market,” says Williams.
As the industry professionals interviewed for this article note, a site’s visibility is paramount to its success. While it’s been suggested that the internet has made a site’s physical visibility less significant, because customers are searching for storage facilities online, drive-by traffic still accounts for a substantial number of new rentals.
“Though the internet drives the majority of our rentals, we believe a highly visible property is at an advantage over those hidden behind buildings or off the main roads,” says Middlebrooks. “The internet does allow stores to perform well, even when not on a main road with visibility to traffic. We still believe that visibility and branding is very important.”
Both Jordan and Williams agree with Middlebrooks about virtual visibility vs. physical visibility. “The internet has made it easier to direct traffic to a site that may not have high visibility,” Jordan says.
Nevertheless, as Williams points out, if you have two locations that are vying for the same tenants, and both have a good web presence, the one that is more visible to drive-by traffic will do better.