The thing about commercial real estate is that there are different property types that comprise it. One of the fastest growing areas here is that of self-storage facilities which became popular because of the growing number of people who are in need of excess storage for a variety of household items, or those who are in transition and are therefore in need of a reliable temporary storage solution.
Self-storage has provided homeowners with a reliable and cost-effective alternative to their storage needs, especially those who live in condominiums or apartments where storage space, and living space for that matter, is rather limited. A majority of those who spend on these facilities are people who have things that they do not need at the moment but cannot muster up the courage to throw away.
Because of this behavior, self-storage businesses have boomed across the globe making investing a self-storage facility a rather worthy venture. Billions in dollars of revenues are generated by this industry year in and year out. A number of reality television programs have also resulted from the popularity of self-storage facilities. And although this kind of business model may seem unusual in the world of commercial real estate, there is no discounting the fact that it is a viable money-maker.
The thing about these facilities though, well most of them, is that they are often situated in locations that are not as glamorous as most people would prefer them to be. The advantageous component here is that a large number of consumers can be accommodated at once, tenants pay a small deposit amount (sometimes even zero), and then they are free to leave as soon as they deem necessary. This level of flexibility is one of the things that make self-storage facilities attractive for the average person.
There are two major factors that can be attributed to the growth of such a business model. First, more and more people acquire things that cannot be consumed. Non-perishable items like knick-knacks, toys, furniture, appliances, books, upholstery, and the like can take up a lot of space if owners refuse to donate or throw them away as new items are purchased.
With the current rise in home prices, many homeowners have also downsized to smaller apartments and condominium units which are easier to manage thus resulting to an even smaller amount of workable and usable space for these belongings. The demand for storage remains the same but the available supply has decreased making self-storage facilities even more essential. The market definitely exists and there is profit to be made.
Second, even if the contracts applied to self-storage rental agreements are rather short, there are customers who simply refuse to throw out unnecessary items, clean out their storage spaces, and instead choose to leave things where they are even after the contract has lapsed. Some religiously renew their contracts while others choose to abandon their personal belongings. Based on estimates from several storage facilities, one tenant uses a storage unit for an average of three years. This is great for a business like this.
Because of this, those who make a business out of renting out storage units are protected from lengthy vacancies that often occur in other areas of commercial real estate. And given the short-term contracts, it is much easier for those in the storage solutions business to react should market conditions rapidly shift.
If you want to engage in this kind of business endeavor and feel like you can manage investing a self-storage facility then here are some of the things that you should be mindful of in order to succeed.
Always consider the geography of the facility. Most of the time, you will find similar facilities situated within close proximity of one another. See to it that your facility is at least three to five miles away from another business. This ensures that you will get a fair share of the market when you start operating.
Also do your research when it comes to choosing the location as your success will depend on what is known as the trade area. It would be best if your trade area has a modern residential component. This means having more apartments and condominiums within close range rather than houses and lots.
Even if an area is quite busy, if there is an existing facility and if you hear that other businessmen are interested in setting up shop in that area, steer clear of it and find a different place for your building. Even if the demand for storage units is high, an oversaturation of the market can cause any business to decline. You can lose customers with the snap of a finger if your nearby competitor goes so much as to offer an added service that you don’t have, say keycard locks for example.
If you are new to the industry, do consider consulting with a real estate specialist that has had extensive exposure to storage facilities. Be sure to understand everything about it and only jump in when you feel confident about your skills to actually handle such an endeavor. During this time, be patient.
If you choose to invest in an existing facility, your patience will also be tested. Do know that a facility that has had a change of ownership usually takes as much as five years to stabilize in terms of operations and earnings. When your building does start to rake profits in, always focus on the economic rather than physical occupancy of the facility. Even if almost all of your storage units have been availed of but you haven’t raised rental prices in years, the economic occupancy will be significantly less compared to the physical attribute.
And of course, always be open to investing in components that will give you an edge over your competition. Customers are not only interested in storage spaces. They also want additional services that will seemingly provide them with more bang for their buck. Add value to your facility by offering enhancements like biometric scanners and proximity cards for added security, climate-control devices to ensure that stored items will be well-preserved, and even mobile apps that will further improve the consumer experience.