Challenges to Developing New Self Storage Projects

Barriers to Entry for New Self Storage Developments

Barriers to Entry for New Self Storage Development

The word is out, there’s money to be made in self-storage. Some even consider it to be recession-proof, driven by life-changes including downsizing, divorce, death, and more. What are some of the challenges developers of new storage facilities face today?

  1. City Requirements.

Some cities are making it harder to develop self-storage, forcing owners to employ the use of more retail-like architectural details, masonry, lighting control, etc. Some municipalities have outright banned the development of self-storage. In cities where self storage development is allowed, building codes may require that expensive sprinkler systems be installed. Always check with the municipality where you intend to build to find out what their requirements are where self-storage is concerned.

  1. The Dreaded Downturn.

We keep hearing it’s coming, and some say it’s already here, but not everyone is feeling the pain. While self-storage owners have enjoyed great returns for many years, in some areas developers are creating a surplus of rentable square footage by overdeveloping, forcing all facilities to drop rates to remain competitive and creating longer times for facilities to rent up to capacity, particularly in larger metropolitan areas. The secondary and tertiary markets are still very active however, and many owners are turning their attention toward these areas to up their odds of success.

  1. More Stringent Lender Requirements.

With the construction cycle slowing due to the amount of “storage lending” that has already taken place, lenders are becoming more cautious regarding their requirements of new self-storage construction projects. Lenders want to make sure that there is enough equity in a project that the project will cash flow even if it takes a little longer than anticipated to fill a facility with renters.

  1. Who Will Win the Race?

New self-storage projects seem to be popping up everywhere. How can you be sure that an area that appears to be underserved will stay that way long enough for you to finish building your facility? Contact local government to see if there are any other self-storage facilities being planned for construction in your area. See if applications have been submitted and/or approved for sitework or building permits for self-storage within a five mile radius of your potential project. Be sure to follow up with them regularly to keep a finger on the pulse of this.