What’s up with all this STORAGE?
Pent up demand is causing a surge in building
By Mike Corbett
Self-storage facilities are cropping up like daisies all over Hamilton County lately. Drive any major thoroughfare and you will eventually come across a recently completed development or one under construction, and they are often right down the street from another one. It’s part of national trend but may be more prominent here.
“Nationally storage saw virtually no new construction from 2010 until 2014,” says Jeff Norman, Vice-president of investor relations & corporate communications for Extra Space Storage, the nation’s second largest owner of storage facilities, “(while) demand for storage continued to increase due to population growth as well as increased product usage…..The strong returns in storage since 2010 have attracted attention from the real estate development community, and we are now in a storage development cycle and have seen a fair amount of new supply in certain markets.”
Like Hamilton County. While no one keeps track of the number of storage developments across the county, it’s hard to miss all the activity, partly because these units are much more visible than they used to be. Once relegated to industrial parks and other back-road locations, storage is coming out of the closet and competing with retail for prime real estate. Of course, that means the facilities have to be more attractive, which makes them more expensive to build, but the increased traffic and visibility are apparently worth the added cost.
“The key on these is to make sure they fit into the context of the surrounding area,” says Sarah Reed, Noblesville Planning Director.
“Developers are now willing to add brick facades and other amenities to make their projects comply with zoning codes,” says Rob Schick, Senior Vice President at Revel and Underwood, a Fishers-based developer and property manager, currently developing a storage facility in Noblesville.
It’s hard to nail down exactly what’s driving the increased demand, but Schick maintains that, even with all the added inventory coming on line, occupancy remains at an all time high and owners have no problem keeping their units rented.
Dave Cox did some market research in Noblesville and found the existing storage facilities were all 85%-90% full. So he built the Hoosier Storage facility on land he already owned on Pleasant St. Demand was so strong he promptly built phase two, which is also filling up nicely. “The return is better than the stock market,” he says, “it’s inexpensive to operate because you only need a couple of employees. The biggest expense is the property tax.”
But there is an art to reading the market. “Getting the right mix is a big part of it,” says Cox. He consulted with other facility owners to make sure he built the right size units.
Norman says each market has its own characteristics, though job and population growth normally lead to demand for storage. “Storage is a need-based product, typically triggered by life events that happen to almost everyone such as moving, death of a relative, divorce, birth of a child, child going away to college, etc.”
Downsizing by empty nesters, the growing market for smaller living units like apartments and tiny houses, and increased visibility all likely play a part in the growing demand.
It’s easy to see why self-storage is such an attractive investment. Although rental rates are lower than other types of real estate, the developments are much easier to build and maintain, with few windows, little or no plumbing and basic electrical and HVAC. And turnover is a snap. With no carpet cleaning or painting, often the most that needed is a quick sweep out of the space and it’s ready for the next tenant.
As a result “the break-even occupancy rate for a self-storage facility is approximately 40%-45%, as compared to 60% or more for apartments,” according to The Appraisal Journal, which studies real estate investments. Units are often rented without a lease, which permits owners to raise rates as needed. “This ability to quickly adjust rents is partly why self-storage cash flow was resilient during the recession…” according to the Journal. “That sector of real estate has the lowest default rate of any type of building,” says Schick.