Construction costs, including those for self storage, are on the rise even though the amount of inflation fluctuate from location to location. If you’re planning to build or expand a self storage facility this year, it’s more important than ever to do your homework when it comes to research, design plans, and bids. (See our blog “A 10-Step Plan to Keep Your Next Self-Storage Development on Track.”
As the owner, it is key that you manage the day-to-day planning, coordination, and execution. It’s your vision, end stake, and money, so take the lead and educate yourself about the forces affecting the market.
In 2021, self storage facility construction spend in the United States dropped to $3.75 billion from its 2018 peak of $4.89 billion. This is a 19% 1-year decrease compared to 2020, a 926% 10-year increase, and a 294% 20-year increase. As the U.S. economy continues to grapple with the economic downturn caused by COVID-19, construction has slowed and will continue to be depressed in the short term despite increasing demand for self storage. (Neighbor.com, 2022)
Despite those statistics, the tremendous industry growth in this sector experienced over the last 25 years can be attributed to greater public awareness of the economic and personal advantages of this industry. Continued increase in demand, teamed with excellent investment potential, has made self storage one of the leading growth industries in the country since 1978 (The Parham Group, n.d.).
Given the current climate, below are some of the variables to be aware of, potential miscellaneous costs, bidding and contractual pitfalls, and other ways to mitigate overall development expenses.
Within the last year the cost of single-story construction jumped from $65 to $85 per square foot. What this means is 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 (Goodin, 2022).
Annual price increases are very typical in the construction industry. COVID-19 over the last several years reduced steel manufacturing and stockpiling. Crippled supply chains have also caused prices to double. Today, however, steel production appears to be on the rebound, and demand will increase once the auto-chip deficit is over, and more cars and planes are built.
If you delay building or expanding your self storage property until prices stabilize, this could take months or years. The income benefit coupled with the growth and latest industry trends makes self storage definitely a great return on investment.
When you are considering building, construction cost is only part of your total development burden. There are many ways to reduce costs and avoid overruns when it comes to building your self storage property. The biggest way to avoid any pitfalls is to thoroughly review your potential self storage property in detail by use of a complete site plan. Look for:
It would be wise to leverage a civil engineer to review properties and local regulations to understand any potential extra costs that can be expected before you start your project.
To maximize your savings and optimize the cost of construction, it’s key to fully understand the expenses tied to certain building and site-design features that can lead to incremental extra dollars per square foot. Below are several other considerations that can impact your project costs. The team at Forge is here to help you make the best building determinations and evaluate your options based upon your budget.
Finally, pay attention to your roof. Many self-storage business owners make the common mistake of using screw-down roofing because it's generally more affordable. The team at Forge urges you to consider using standing seam roof panels instead because this installation doesn't require penetrating the roof with screws because of its joining rib design. The screws typically aren't a problem for the first year or so (depending on your environment), but those screws must be tightened or replaced over time. It's important to remember that each roof penetration increases the risk of leaks and ultimately disappointing your customers. Our services will help you retain your customers and protect their possessions. For more details, see Metal Building Re-Roofing with Standing Seam Metal Roof Panels.
Often times poor or incomplete bidding specifications can lead to higher construction costs. For this reason, every construction contract should include an addendum to list items that might otherwise be unaccounted for. These include:
Full cleaning of walls and floors once construction is completeAlso, if there are specific brand or quality requirements, these should be stated in the addendum with a note that no substitutions are permitted. A bid addendum helps guarantee that everything is communicated clearly to all parties involved.
Additional items you must account for in the total cost of self storage construction and financing include:
When bids are incomplete, this can lead to higher prices and unexpected cost overruns meaning you may then have to later downgrade a part of the construction.
Part of the project-planning process is to include a lease-up plan. The average self storage street rate for a 10x10 storage unit is $131/month, up 4% year-over-year.
The other good news is that the self storage industry has grown to more than 1.6 billion square feet of space so far in 2022 (StorageCafe.com, 2022). According to the latest Storage Café statistics, over the span of the last 5 years, 255.5 million square feet of storage space was built – that's equivalent to 16% of the total inventory. In 2021 alone, almost 44.3 million rentable square feet were finalized, an area that would cover either the whole of Central Park or the Grand Central Terminal. New supply in 2021 represents 3% of the existing inventory.
In even better news, a third of Americans planning a change of residence or needing more space at home reported that they use self storage. (Storage Cafe, 2022) A recent report from Storage Café found:
Self storage is relevant for both homeowners and renters who use it to better manage their belongings without cluttering their living space. In addition, with the COVID-19 pandemic, many customers started using self storage space for clearing space in their homes to work remotely.
These factors all result in greater facility value and the ability to recuperate project and construction expenditures more quickly. One of the other added benefits of commercial real estate is that it appreciates. Self storage owners also receive benefits from depreciation and amortization.
Your biggest expenses are in the land and building. Once you build, the cost doesn’t increase. Each year, you can typically raise rental rates to stay ahead of expenses and generate more profit. And, of course, when you sell, you’ll have an asset that’s worth more than when you built it due to inflation and the work you’ve put into increasing property value.
2021 was a record year for the number of self storage facilities sold. Higher occupancy and record rental rates have laid the groundwork for incredible increases in profit. This has also factored into newly constructed facilities still in lease-up being sold to buyers and providing multi-million-dollar returns for owners.
As you can see, there are a lot of factors that impact self storage construction costs. In the end, working with a company such as Forge to help put together a knowledgeable development team before you make an offer on land and properly executing each phase, from due diligence to bidding to design to operation, is necessary to keep everything on track and on budget. Give us a call! We’d love to help.
From Alaska to Florida, more than 50,000 self-storage facilities are scattered around the country. That’s about the same number of McDonald’s, Starbucks and Subway locations across the U.S. combined. These facilities are the foundation of the U.S. self-storage industry1, which was projected to generate $37 billion in revenue in 2019. The typical profit margin of a self storage business in the U.S. is 11%.2 That’s well above the profit margins for many other types of small businesses. Given those numbers, starting a self storage business, and keeping your self storage development on track is key. There’s a lot to do and many decisions to make.
Given today’s economy, it is key to act in a timely fashion. Developers and self storage business owners sometimes get stuck in the decision-making process, unable to move forward. No doubt, pursuing a self storage project can be overwhelming since there’s a lot to do and many choices to be made.
By being disciplined and taking one step at a time, you can make smart decisions. Here’s a ten-step plan to keep things moving forward in the right direction.
Before scouting locations for a self storage facility — no matter whether you’re looking at buying an existing facility or building a new one — you’ll need to look at the costs involved. The numbers will vary widely based on factors such as location, acquisition costs, land costs and construction costs. Things you will need to consider include:
Look at the cost of operation. A report released in early 2018 by commercial real estate company CBRE shows real estate taxes accounted for 28 percent of all self storage operating expenses, with on-site and off-site management costs eating up another 38 percent of operating expenses.
Develop a business plan. This can help propel the business toward success, letting you realize your goals and manage issues that might arise. In addition, most lenders will want to see a business plan before extending a loan.
Determine your scale of investment. You might be able to put up a single-story, 40,000-square-foot self storage development in a small town for $1 million or less, whereas a two-story, 80,000-square-foot facility in a more urban setting could set you back $6 million.
You can expect to spend anywhere from $25 to $75 per square foot on new construction. However, the location of the facility — including the cost of the land — will dictate the price tag for construction.
If you’re developing a self storage facility, consider:
Join networking groups and your local self storage association to help you learn from their experiences and gain referrals. Get to know professionals in the legal, real estate, financial, construction, and design industries that are experts in the self storage industry.
Drive around in the areas that interest you. Look for high-density residential areas and known upcoming residential developments (single- or multi-family).
Contact a commercial broker and/or your municipality. The city may be selling multiple parcels it owns. Based on its size, think critically about what type of facility could be built on the parcel.
Estimate whether it's good for self-storage. Call the municipality to find out how the land is zoned and any relevant regulations regarding industry development. If the property is already zoned for self storage, that removes a huge barrier. But if the property needs to be rezoned, you could spend months or years seeking approval for a zoning change.
Additionally, the issue of entitlement involves obtaining approval from government entities for your development plans. As with rezoning, an entitlement case could elapse valuable time.
Purchase the land with a 120-day due diligence period. The contract should state that your deposit is refundable during this period if you decide to forego the purchase. If you choose to buy the land, your deposit becomes non-refundable at 60 days. Also, give yourself 180 days to close.3
Complete a market feasibility study. This exercise will help you target the demographics of the customer base within a one- to five-mile radius of the facility. A three- to five-mile area is the typical size of a market for a self storage facility.
You’ll want to validate the median income in the market area (self storage renters tend to be in the middle-income and upper-middle-income brackets), along with the median age (self storage tenants are normally in their early 20s to mid-50s).
In addition, you’ll want to review the following aspects of your proposed market area4:
Other components of the feasibility study normally will include an overview of the self storage industry; long-range projections for rental rates, income, expenses, and property value; and details about the storage project’s zoning. This will help you determine whether the investment's land acquisition and building costs are sound.
This is also the time to look for any obstacles, such as easements, building restrictions, zoning and entitlement hurdles, water retention requirements, and wildlife, tree, or waterway conservation restrictions.
The study should also help determine your unit mix, what phases to build, and the amenities you should offer to achieve your desired return. It provides your operational budget, lease-up period, financial projections, and marketing plan and feeds into the basis of your business plan.
Determining how to finance an acquisition or a new development is your next step. Do you need to take out a loan? A number of options are available, such as acquisition loans, construction loans, and SBA loans. Many of these loans cover terms of 10 to 25 years. Work with a lending professional who’s well-versed in the self storage industry to point you in the right direction.
To qualify for a self storage loan, here are four things you’ll likely need:
Make sure you have enough liquid capital not only to buy or build a facility but also to operate the facility.
You may also want to consider strategically partnering with other investors to buy or build a facility. This can be done through:
If going the loan route, contacting multiple self-storage lenders and negotiating the best terms is best.
Be ready to send each lender or investor all the documents they need to make a quick decision. Your packet should include everything from your feasibility study as well as the items mentioned above, along with your business plan, tax returns, and personal financial statement.
If you ultimately choose a Small Business Administration loan, allow 90 days to close. If you’re going with conventional financing, allow 60 days.
At this stage, there are things you must do to prepare for building – obtain various reports and geographical surveys, such as a phase-one environmental site report, a soil-borings report, an engineer’s preliminary report, and an endangered-species report. Developing a self storage facility requires expertise so organizing your design team is crucial. The team at Forge can lead you through this process.5
A development team should include experienced legal, real estate, financial, construction and design professionals. Few people who are new to the self storage industry can solely develop a new facility.
The design process starts with a survey of the land. The architect creates a plot plan indicating the locations of buildings in relation to the land. In this initial design, the architect considers all the information the civil engineer has provided about site restrictions and the availability of utilities.
The next step is to design the floor plans followed by the elevations, or what the building will look like. Cross sections and details are added to indicate floor levels and details of footings, foundation, walls, floors, ceilings, and roof construction.
The structural engineer then assures the materials and how they are assembled are strong enough to withstand their weight, the weight of any use it may be put to, and all internal and external forces—known as vertical loads and lateral stresses—applied to the building.
A load is any force exerted upon a structure such as snow, wind, or earthquakes or the weight of the building itself. Live loads are produced by people, furnishings, equipment, and materials inside the building. Stresses are internal forces of a material constructed to resist external forces.
The civil engineering plan provides information about the excavation and grading needs the subcontractor will require to prepare the soil for foundations, ensure stormwater drains from the site, determine contours and elevations, and provide an earthwork estimate. That data will also help them provide an accurate bid for crew size, equipment, and timeline, and it’s needed by the retaining wall subcontractor and building manufacturer.
Forge Building Company has created its building design that allows for efficient use of materials and allows for crews to build quickly.
Once the team has been assembled, the general contractor is responsible for making sure that everyone is building the project in accordance with the design. General contractors may provide labor and materials themselves, use subcontractors and vendors, or a combination of the above. Subcontractors provide their own shop drawings and may be in charge of trade-specific permits and inspections.
The general contractor weaves everyone’s efforts into the completed product. Because of the volatility of material markets, most contractors won’t lock in pricing for materials and there could be price increases when material orders are processed. It is a good idea to ensure you include a Price Increase Contingency amount in your budget.
When you reach this step, the team at Forge is ready to assist. We will ensure your self storage project is built on schedule and on budget and will take pictures along the way.
With a project start date determined, your general contractor will give you expert feedback on construction activity and sequence of work to accomplish your goals best. Along this path, milestones will be identified such as:6
As the schedule is designed, the general contractor typically gets requirements from the major subcontractors to help determine realistic timelines. This information can also help identify long lead times for materials so they can be addressed early in the purchasing process and reviewed for the projected construction cash flow.
This is also a great time to set up your property-management systems and marketing initiatives to be ready to open as soon as you receive your Certificate of Occupancy. For technology considerations, see our blog “Technology – What You Need for Your Self Storage Business.”
Now is the time to leverage your marketing to lease the facility storage units. Your website is one of the biggest assets for a positive customer experience. It should be easy to find and use.
Content for your web presence is the single most important thing for search engine optimization and for prospects and customers to be able to find your business quickly. This includes your blog posts, social media, landing pages, FAQ pages, videos, and everything else related to your business.
Other helpful technology that will improve the customer experience includes any automation you use, security and access tools, digital signage, and property-management software that facilitates online rentals and autopay. Customers expect technology that’s easy to use, available around the clock, nice to look at, and engaging.
For more tips on creating the best customer experience, see our blog “Creating the Best Customer Experience for Your Self Storage Business.”
Once your self storage development is built, open, and renting, the most important aspects of hitting or exceeding your projections and maintaining high performance are answering your phone, monitoring rates regularly, keeping customers happy, and monitoring your marketing and online presence. In addition, it is key to think about giving back to your community, rewarding your employees, and starting to look for land for your next facility!
One of the best ways to create the ultimate customer experience is to walk through the process of renting a unit, visiting the site, and accessing the unit. Was anything surprising? Confusing? Alarming? Go about this drill as if you’re someone who knows nothing about the industry and see how easy it is to navigate the process of looking for, renting, and using self-storage.
The relationship you build with customers through these strategies and how you fulfill their needs is ultimately what will make their experience pleasant and help with retention and referrals in the future.
Works Cited
1 SpareFoot. (2021, January 27). Retrieved from SpareFoot StorageBeat: https://www.sparefoot.com/self-storage/news/1432-self-storage-industry-statistics/
2 Egan, J. (2021, September 13). Storable. Retrieved from Storable: https://www.storable.com/resources/learn/is-a-self-storage-business-profitable/
3 D’Agostino, K. (2021, October 5). InsideSelfStorage.com. Retrieved from Inside Self-Storage: https://www.insideselfstorage.com/development/9-step-plan-keep-your-next-self-storage-development-track
4 Egan, J. (2021, July 26). Storable. Retrieved from Storable: https://www.storable.com/resources/learn/starting-a-self-storage-business/
5 Inside Self Storage. (2008, September 15). Retrieved from InsideSelfStorage.com: https://www.insideselfstorage.com/construction/building-self-storage-creating-harmonious-design-team
6 Rogers, R. (2016, October 6). Inside Self Storage. Retrieved from InsideSelfStorage.com: https://www.insideselfstorage.com/construction/creating-and-managing-self-storage-construction-timeline
Despite all of the craziness that the pandemic has caused, self-storage development continues its forward momentum—but not without impediments. The cost of raw materials is on the rise, and orders can take longer to ship, plus there are labor shortages. These issues will likely resolve in time, but there’s one obstacle poised to grow still more obtrusive: a lack of suitable sites on which to build. Between market saturation and increasingly restrictive zoning, builders and owners struggle to find suitable parcels to build self storage facilities. It’s a process that’s often taking longer and generating more frustration.
Every self-storage construction project has its own nuances, and it’s never a “one size fits all” when it comes to construction but following are some basic “rules of thumb” to help point you in the right direction.
Additionally, also see our blog post, “Building a Commercial Storage Building” for more insights into understanding development fundamentals.
For a sample of the types of single-story self-storage buildings that Forge Building Company offers, please check out: Single-Story Self-Storage Building Contractors
And for more information on costs and location considerations, please see our blog titled “Contractors That Build Commercial Storage Buildings & Facilities.”
Finding a suitable parcel on which to build a self-storage facility with the best steel building contractor will also reap the highest return on investment and get your 2022 off to a great year.
Through both good and bad economic times, the self-storage sector has proven to be a steady performer. That’s why so many investors want to get a piece of the action. To do so, you can either buy an existing self-storage facility or develop a new one. Successfully building a commercial storage building involves several factors, including choosing the right site, design, the correct unit mix, and layout. This may sound simple, right? Not so fast. Read more about these fundamentals and get advice on how to achieve optimal results.
If you go down the development path, one key question is: How much money will you need? There’s no simple answer to that question, as the cost can vary based on several factors, such as location and the number of self-storage units.
Ultimately, the goal of any self-storage development should be financial success, and the best way to accomplish that is to carefully plan the basics: site selection, unit mix, and layout. For many, the industry business model looks simple: buy land, build, and make money. It may once have been that simple, but today, it’s much more complex.
The commercial storage building market, like many similar markets are experiencing greater competition, higher land and building costs, and additional regulatory burdens. The industry, in general, is seeing the use of more climate-controlled and multi-story buildings, due in part to trends in consumer demand. As a result, self-storage facilities are becoming much more expensive to develop, with longer lease-to-stabilization times. Even so, they continue to be a solid investment choice.
Choosing the right site and creating a well-designed unit mix and layout is critical, especially for a first-time developer. These are the fundamentals of building a successful storage business, whether you’re building your first or fortieth facility.
Site selection is the most critical factor in planning for the success of a commercial storage building. It is important to select a highly visible location, has good access, and is located on a major road. The site should be in a high-growth area or one that’s clearly in the path of progress for that region. In addition, it’s key to look for a good combination of demographics, with higher-than-average household income and population growth within a three-mile trade area. Finally, the location should have minimal existing or planned self-storage competition, particularly within the first few miles.
When you discover an area that’s underserved, chances are other self-storage building manufacturers and developers have noticed it as well. Check with the local building authority to see what’s being planned before starting a building project. You don’t have to let competitive forces sway your decision but it’s good to be aware of all existing and planned projects.
Once the site selection is determined, it is key that the property is large enough for your planned development and that it has access to the proper utilities, such as water, sewer, and electricity. It should also be properly zoned.
It is critical to understand that not all land is good for self-storage. A good site must have the attributes discussed previously. If it doesn’t, it is best to keep looking for one that does.
Typically, a single-story self-storage development might require three to five acres, depending on topography and shape. Whereas a multi-story self-storage site may only require two acres or so. The ideal site should give you a high level of confidence about all of the specifics of that particular location.
Generally, you can count on a self-storage facility costing $25 to $70 per square foot to build. That range can vary greatly. For instance, the cost of steel may go up or down at any given time, or the area where you’re building the facility may be experiencing a labor shortage. And, of course, you’ll certainly face higher costs in a major metro area than you would in a small community.
Self-storage unit mix is normally a product of population density and income levels. So it is key that you understand the market in which you are building the commercial storage-units. For example, areas of higher income will typically demand more security and climate-controlled features; apartment dwellers will want smaller units, say 5-by-10s; and suburban or commercial-oriented markets will call for larger spaces, such as 10-by-20s. Also, see our article on Determining the Right Unit Mix.
It’s important to note that your financial return per square foot (PSF) usually diminishes as the size of the unit increases. For example, if your market will support $70 for a 5-by-10, you’re achieving a rental rate of $16.80 PSF. It’s doubtful the 10-by-20 will support that same rate. This doesn’t mean you should build a higher proportion of smaller units, though. A store with 50,000 net rentable square feet might have more than 500 storage units or as few as 300, depending on the market. You must build the unit mix to the market, not to skew the PSF return.
When you’re looking to develop a self-storage facility, you obviously must decide where to build it. Be prepared, finding a great site for storage can be tricky. You’ll need to find a site for the right price, with the right zoning, and the right demographics to support your business.
To discuss site layout, it’s key to understand building a single-story versus a multi-story storage facility. The layout process typically begins with the involvement of a professional civil engineer with experience in self-storage design, which can be invaluable. The goal is to maximize the net rentable square footage. You’ll typically be hunting for 2.5 to 5 acres to accommodate the facility. Land costs typically make up about 25% to 30% of the entire development budget and you will also need a site that will accommodate a minimum of 50,000 square feet, constructed all at once or in phases.
A single-story facility usually costs $25 to $40 per square foot. Construction of a multi-story facility typically costs more — $42 to $70 per square foot. These figures don’t include land or site improvement costs.
Of course, this isn’t a consideration if you already own property suited for a storage facility, although you still may need to go through the costly, time-consuming process of rezoning the land.
The layout is primarily a product of the shape and topography of the land parcel, but many other factors come into play, including:
At Forge, we normally factor in all the setbacks, easements, and storm-water restrictions first. From there, our drafters will then sketch the layout. Next, we try to determine how much climate-controlled versus non-climate-controlled storage can fit on the site. Then we look at accessibility to each of the buildings and individual units, ensuring it will be easy for customers to access their storage space. If it isn’t reasonably simple for tenants to drive in, get to their unit, and store their items, they’ll go elsewhere.
The key takeaway here is that it is critical to find the right site, then design the unit mix and layout based on that particular market. Doing the research and spending time with professional engineers and planners will help you succeed in your self-storage development. Remember, it’s a process that will involve a considerable amount of time and money, but the end reward will be worth it. At Forge, we can simplify the process by giving you a one-stop shop for all of your commercial storage building needs. Then once your new storage business is off to a solid start, you’ll be ready to focus on your next self-storage development project!
Related article: Before Construction Begins: Fundamentals of Building Self-Storage
Costs have changed since this blog was posted. The hard and soft costs of construction will vary from project to project. Let’s break it down.
Keep in mind, that prices in materials, such as steel, may fluctuate and this directly impacts the cost per square foot. Also, you may be building in an area that is experiencing labor shortages causing the labor prices to increase as well.
