Self-storage construction costs are on the rise in this current economy, but the factors that impact a project go far beyond the price of steel and other material costs. This blog addresses variables emerging out of the current climate, hidden expenses to watch for, bidding pitfalls and ways to mitigate overall self-storage development expenses.
Self-storage construction costs are based on a lot of different variables and fluctuate from location to location, but the one thing that’s consistent is they’re on the rise. If you’re planning to build a project this year, it’s more important than ever to be on target with your research, design plans and bids. You must adjust to the market conditions and execute the development process correctly.
Partnering with a steel building contractor, such as Forge Building Company, can be the difference in a successful build that stays on budget and one that can spiral out of control. As the developer or owner, you should be a big part of the day-to-day planning, coordination, and execution.
Here’s what is happening with self-storage construction costs today and some important considerations that can impact these costs significantly.
A recent article from Inside Self-Storage, states that in a short amount of time the cost of single-story construction jumped from $65 to $85 per square foot. This essentially means that with a $6 million, phase-one budget from the Small Business Administration, you’ll likely build closer to 40,000 square feet than 50,000. Your alternative is to increase your development budget by $600,000 to build closer to your original goal.
Yearly price increases are very typical in self-storage construction. Although it may be frustrating while you’re building, it can deter would-be competitors once you open a facility. Additionally, you may hear every spring that the price of steel is going up. The COVID pandemic has reduced steel manufacturing and typical stockpiling. This, along with crippled supply chains, has caused prices to double.
Though some folks may advise you to hold off on building self-storage until steel prices come down, this could take months or years, or may never happen. An indefinite pause can quickly turn into a back-to-zero strategy in which you may never build.
Building manufacturers are starting to report a leveling off of price increases. Of course, it’s impossible to predict where prices will end up or how long it’ll take to get there. Still, steel production appears to be on the rebound, and demand will increase once the auto-chip deficit is over, and more cars are built. More will also be required when commercial development picks up across construction sectors beyond self-storage.
Builder’s construction cost is only part of your total development costs. There are many ways to reduce costs and avoid overruns, and it all begins by properly reviewing a potential self-storage property in detail and making accurate assessments when it comes to site work before determining an offer price. It is key to find a site for the right price, with the right zoning, and the right demographics to support your business. (Egan, 2021)
For example, land may drive up construction costs by $100,000 to $400,000 or more due to bad soils, steep topography, unusable land, and other issues. Existing utilities or their absence are always a factor, too. In many states, if there’s no water service, and you have to build an unreasonable number of costly firewalls. Sometimes, even if there’s suitable water, it may be on the other side of a major road. In that case, it may cost an extra $50,000 to bore under the road to make it work.
So, while location is the first of many assessments you need to make, you’ll also need a civil engineer to review properties and local regulations to understand any extra costs that can be expected with one site versus another. In addition, some municipalities have severe building-coverage limits and other regulations that can impact a project. This can result in extra cost of several hundred thousand dollars. For other considerations, see our blog titled “Contractors That Build Commercial Storage Buildings & Facilities”.
To maximize your savings and optimize the cost of self-storage construction, it’s important to keep all of this in mind when negotiating land costs. Not fully understanding the expenses tied to certain building and site-design features can lead to incremental extra dollars per square foot. According to Inside Self-Storage, below are several other items that can impact your overall project cost.
Finally, pay attention to storm-drainage costs, which are dependent on many items including roof directional pitch, building gutters, curbing and sheet flow to drainage swales, when possible. The difference between a well-thought-out drainage design and a typical, off-the-shelf solution can be $100,000 or a few dollars per square foot.
Poor project bidding specifications can lead to higher self-storage construction costs. So it is key that the plans and specs are dialed in and very specific to avoid cost overruns.
Every construction contract should have an addendum to list items that might otherwise be overlooked or that aren’t in the bid. (Goodin, 2019) These include:
Also, if there are specific brand or quality requirements, these should be stated in the addendum with a note that no substitutions are permitted. The cost and quality between various types of fencing, gates, security systems, kiosks, desks/cabinets, cameras, metal buildings, etc., can be significant. A bid addendum helps ensure all parties are on the same page.
Keep in mind, too, that contractor budget allowances may be low. Items like security, signage and office desks/counters should be detailed prior to bidding to obtain a fixed fee or more realistic budget. Here are some additional items you should account for in the total cost of self-storage construction and financing:
Incomplete bids are dangerous and lead to higher prices and unexpected cost overruns. This is particularly important because with higher self-storage construction costs, your contingency budget may have less money to deal with overruns.
Part of the project-planning process is to understand what kind of self-storage operation you’ll be running. Your lease-up plan must be written and detailed long before you begin designing or a quick path to breakeven most likely won’t occur. It should include your sales and marketing efforts as well.
The good news is national self-storage occupancy figures have risen from approximately 88% (Onedesk, 2021) to 94% in the last year, driven by:
This gives you greater facility value and the ability to recuperate project expenditures. One of the greatest benefits of real estate is that it appreciates. Self-storage owners also receive benefits from depreciation and amortization. The greatest thing is that once you build, you can typically raise rental rates each year to accommodate increases in expenses and generate more profit. And when it comes time to sell, you’ll have an asset that’s worth more than when you purchased or built it.
2021 was a record year for the number of self-storage facilities sold. Higher occupancy and record rental rates have laid the groundwork for increases in profit. The current market trends still show clearly that building is typically cheaper and more profitable than buying.
There are a lot of factors impacting self-storage construction costs. Working together a knowledgeable development team before you make an offer on land and properly executing each step, from due diligence to bidding to design to operation, is necessary to keep everything moving in the right direction. For other keys in selecting a commercial steel building contractor, see our blog titled “Commercial Steel Building Developers.”
These are just a few of the qualities that make custom steel buildings the right choice for business use cases. When you are ready to learn how a metal building can help you achieve your goals the team at Forge Building Company is ready to serve you. Give us a call to discuss your project. You are the glue that’ll hold everything together.
To view our pre-engineered steel buildings, see https://forgebuildings.com/project-gallery/completed-projects/.