Despite several years of substantial ground-up development, demand for self-storage remains strong in many markets across the United States thanks to shifts in lifestyles that generate a need for storage space outside the home and/or office such as telecommuting, virtual schooling, business closures, job relocations, and the like.
While the ongoing COVID-19 pandemic brought some self-storage construction projects to a temporary halt, plenty of new supply came on line during the second half of 2020 after shutdown orders were lifted and construction companies were able to finish the delayed developments. Nevertheless, the need for thorough due diligence is more important than ever to avoid inundating areas with too much new supply.
In addition to the typical feasibility studies and due diligence owners, operators, and developers are encouraged to conduct prior to planning new development, there is no better time than the present to put a focus on providing product that is missing from your market.
As Steve Hajewski, marketing manager of Sun Prairie, Wis.-based Trachte Building Systems, notes, not all new supply is created equal. In fact, you could be doing the market a disservice if you plan to add more of the same type of supply already present, especially if competitive discounting is already taking place.
For instance, according to Hajewski, the discounting of street rates is currently occurring in both Milwaukee and Minneapolis, with one REIT renting 10-by-10s for a meager $17. “The REITs built large sites, which decimates the market for a while,” he says. “There’s too much supply in the market.”
As Hajewski points out, the reason for the excessive discounting boils down to supply versus demand. In his example, the units being marked down are primarily interior ones with climate-control features.
“Discounting affects indoor units at multi-story facilities more than larger units or RV storage,” says Hajewski, adding that there is a shortage of larger units and RV storage space in those two metropolitan statistical areas (MSAs). “They have a lower ROI [return on investment], but there is more need for them.”
To paint a clearer picture of self-storage demand in and around Wisconsin, Hajewski provides specifics about the 280-unit property he owns: “All the large exterior units are gone.”
With that detail in mind, Hajewski recommends surveying markets for untapped opportunities before determining a unit mix for a new development or expanding an existing site. “There are not a lot of exterior-access climate-controlled units,” he says.
Although climate-controlled units with exterior access require insulation and sectional doors, they may be a profitable offering depending on the market’s demographics. “They are nice units for automobiles,” says Hajewski, who also mentions that car collectors are good paying, long-term customers. “There is not much supply, so there is less price pressure on them. They are unusual and something different for the market and therefore bring premium rates.”
With financing readily available and interest rates remaining low, Hajewski believes that new self-storage construction will continue in 2021. However, in addition to the ever-present risk of market saturation, he believes that there are several factors of new development that command consideration.
Time is one component that can derail the best-laid plans. Nowadays, with a second wave of the pandemic causing ripples around the nation, delays are still possible when it comes to planning and approvals. Keep in mind that city officials and inspectors may still be working remotely. Therefore, you may need to adjust your schedule accordingly.
Speaking of time, Hajewski also notes that multi-story facilities take more time to plan and develop than single-story facilities. The reason behind their extended timetables can be partially attributed to building codes as well as city ordinances, requirements, and/or preferences.
“Know the codes,” Hajewski says. These include fire protection and stormwater rules. As always, zoning is another matter that developers must understand. Depending on the location and the project size, it may be necessary to incorporate firewalls or sprinkler systems, either of which “can be costly.
Although the Self Storage Association has been challenging newer fire protection regulations on behalf of the industry, Hajewski reminds developers that they have the potential to impact projects. “Be prepared for it,” he says. See the sidebar on page # for the latest changes to the International Building Code.
Another detail that Hajewski points out is the shift to 100 percent climate-controlled buildings due to code changes. “With a floating slab, you don’t want to have a thermal break between the interior and exterior access units,” he says. “But the thermal break is required by newer building codes.”
Despite the additional hurdles, there are situations were multi-story buildings are the only option due to space. “It makes sense where land is limited or costly,” says Hajewski, “but the suburbs tend to have drive-up storage. Consumers prefer ground-level access. It’s convenient.”
So, if building up is the most cost-effective choice for your potential project, spend some extra time devising a design that focuses on customer convenience. Multiple elevators and loading bays within the multi-story facility may be necessary to provide a reasonable travel distance from the unloading areas to the units for customers carting bulky belongings.
Building Codes Update
With the support of its Code Committee, the Self Storage Association successfully pursued several key changes to the 2021 International Building Code. Changes to the International Building Code that affect self-storage include:
- An exception has been added to IBC Section 2902.3.3 to permit an increase in the location (to greater than every other floor) and maximum distance of travel (to greater than 500 feet) for restrooms. The location and travel distance must be approved by the code official.
- The maximum allowable height of sprinklered facilities made of Type IIB materials (unprotected steel) and Type IIIB materials (noncombustible or fire-retardant-treated wood stud exterior walls and any interior construction) has been increased from three stories to four stories. The Code continues to have total floor and building square footage limits.
- Pursuant to modified IBC Section 903.2.9, storage facilities are exempt from the automatic sprinkler system requirement if: (1) the total fire area is 12,000 square feet or less, (2) the combined total fire areas are 24,000 square feet or less, (3) the facility is no greater than one story above grade plane, and (4) all storage spaces are accessed directly from the exterior.
These changes go into effect as they are adopted by local and state governments over the next several years. Prior to the adoption on the local and state level, storage developers can request that the code official rely on the 2021 changes as acceptable alternative methods of construction pursuant to section 104.11 of the existing International Building Code.
Obviously, it is nearly impossible to prepare for every conceivable obstacle when it comes self-storage construction, but it certainly pays to plan ahead.
“There’s always something unexpected,” says Hajewski, adding that having a copious contingency fund is a shrewd strategy.