President & CEO of World Class Capital Group, LLC
In nature, spring is the end of hibernation and the start of new growth. The same may be true for self-storage as people begin to tackle spring cleaning, packing away their winter wardrobes, snow gear, and holiday decorations for another year. However, due to a lack of storage supply across the nation, will new customers be able to find adequate storage space for their seasonal goods and other possessions? And, perhaps more important to operators, will the self-storage industry be inundated by new development now that the ground has thawed?
According to Nate Paul, president and CEO of World Class Capital Group, LLC, a national real estate investment firm, there has clearly been a lack of new development since the Great Recession. In fact, even though 2015 was a phenomenal year for the industry, only approximately 150 to 175 new facilities were built per year during that time.
While the lack of new supply has resulted in stable occupancies and increased rents—a definite boon for current operators—it’s obvious that something has to give, especially as populations continue to flourish.
It’s safe to say that there will be more development this year than in 2015, with some industry professionals predicting around 500 to 1,000 new facilities coming on line in 2016, but the types of projects being built may be slightly different than those built in years past. For example, Paul foresees an increase in urbanized, in-fill facilities. This means the somewhat recent trend of building “up instead of out” will likely continue, especially in large cities where premium land is limited or comes with hefty price tags. Without a doubt, single-level construction may become an archaic practice within the self-storage industry as the cost of land gets gradually more expensive each year, making it more difficult—if not impossible—for developers to carry out horizontal projects.
Although multi-story facilities have become the norm in the large metropolitan areas such as New York City, many developers are attempting to save on land costs by squeezing self-storage properties onto single acre parcels within secondary and tertiary markets as well. “Land availability is an issue,” says Paul. “It’s more scarce in the cities.”
Despite the fact that land is in short supply within the top MSAs, Paul believes that those markets will still experience the most growth. He believes Los Angeles; the boroughs of New York City; and Austin, Texas (due to rapid population growth), will encounter the greatest amount of new storage development in 2016.
In addition to vertical storage facilities, mixed-use properties are gaining momentum in areas that desire more retail-based businesses. While mixed-use properties may help garner support from local zoning committees, home owners associations, permitting boards, and the like, Paul cautions developers not to be blindsided by the rose-colored glasses of mixed-use facilities. “They come with their own unique set of obstacles,” he says, mentioning that problems can arise when it comes to signage, site access, and loading/unloading. Moreover, unless the stores have separate parcels of land, there could be landlord issues that the storage operator may not be prepared or willing to handle.
Regardless of what type of facility you decide to build, Paul reminds developers to “make sure projections will work” before building anywhere. Obviously, while there are pockets of opportunity across the nation, due diligence is essential in order to avoid market saturation. When it comes down to it, an appropriate saying may be that “developer discretion is advised”.
On the operations side of self-storage, Paul believes that the most successful storage facilities have two common denominators: great web presence and exceptional managers. Nowadays, with Internet-savvy Millennials using storage more than ever before, it’s vital to have both mobile and traditional websites that enable customers to reserve units and make payments. As a matter of fact, while other generations have reservations about making online purchases, Millennials actually prefer it. To make the process even more appealing to this generation, consider offering PayPal as a payment option. This streamlines the process, enabling users to pay without wasting precious time entering their billing information.
With Millennials in mind, it’s also wise to consider adding services that allow them to communicate with your company through text message, live chat, or social media platform. This generation appreciates having the ability to leave customer reviews as well. While you may be hesitant to invest the time and money required to make all of these additions, keep in mind that the Millennials make up the largest generation by population size at 86 million strong, and, according to a Gen-Y survey report on Oracle.com, their buying power is expected to surpass that of the Baby Boomers by 2018. Paul also recommends taking advantage of the industry’s “good sources of technology such as Sparefoot”.
Basically, World Class Capital Group’s secret weapon is investing in the “front-end to be competitive”. “We are always looking for ways to innovate,” says Paul. “And we put a big focus on having the best managers in the industry. You need to have great people on the ground.”
Paul, who emphasizes that self-storage is a people business, creates top-notch managers through practical on-site training and the development of leadership. “We take a close look at our key performers,” he says, “to identify and help develop their leadership skills.”
Team Up Or Forfeit
Of course, both strong web presence and great managers require substantial investments in time and money. Unfortunately, the operators who are unable to allocate the necessary funds for these items may be left in the dust. Paul offers this advice if you can’t afford to bring your storage business up to speed: “Align yourself with operators with expertise.” In other words, find a third-party management company, a storage association, or another storage group that can provide guidance as well as economies of scale for these types of expenses. Although there are costs and fees associated with each, a thorough cost-benefit analysis can help you choose the right option for your facility.
At the end of the day, if you find the cost to remain competitive is too much to make it worthwhile, it could be time to get out of the storage game. Paul foresees this scenario becoming more prevalent in the next few years, and larger industry players will be there to catch the decent pieces.
“On the investment side, there will be more industry consolidation,” Paul says. “The big will continue to get bigger.”
Erica Shatzer is the editor of Mini-Storage Messenger, Self-Storage Now!, and Self-Storage Canada.