Let’s use Jan. of 2024 as a back-to-the-basics on how to get into the self-storage business or grow one in these challenging times; I thought I would talk again about what makes a good site for self-storage.

I have written about it in episodes 303 and 381, but I will address it again. There are some new people in the community, and this may help them.

I have made some real mistakes here in the past.

I think there are four main elements that make a great self-storage site for development.

Now, there is no perfect site. Every deal and every site always have tradeoffs. But I strive to have most of these boxes checked.

1. Visibility

We track where our new leases come from, and for every facility, “drive-by” is almost always number one. 

It’s not that someone drives by and says to themselves, “Oh, there is self-storage. I think I will rent a unit.”

But if you think about it, it makes perfect sense.

Most of your customers (ours average 86%) live within three to five miles (or closer) of your facility. That is your customer base.

If you have good visibility, your customer base will see you often in their daily movement through life, going to stores, taking kids to school and games, and so on.

Then, when they need storage or search online for self-storage, they will think of or see your site and say, “Oh yeah, that place.”

So, first and foremost, I want to be seen.

Now, there is a valid argument that with the internet, you can drive people to a site that doesn’t have as good a visibility.

Perhaps you are right.

For me, there is no upside in winning that argument.

At this point in the evolution of the self-storage industry, I am not willing to bet $2 to $6 million or more on it. I know visibility works.

So, I want a highly visible site. I do know people will make two to three turns to get to a highly visible site, like one with expressway exposure. In my world, viability is more important than direct access on a main road (although that is much more preferable).

So, the visibility criteria could eliminate over 90% of available sites for sale because most sites that meet our visibility criteria are zoned retail and very expensive. But remember, it does not eliminate all sites.

One has to burn some calories to find a highly visible site that can work for self-storage and be priced in a way that makes economic since for a product that generates between $10 and $20 per square foot income, not the $100 to $200 per square foot income as many retail stores do.

2. Trade Area Demand & Demographics

I cannot overstress this factor today.

Once I find a site, oversupply and/or poor demographics may kill many deals.

Specifically, today I look at:

• Square feet of self-storage per capita.
  • Now, I don’t have an exact number I use. Houston, Texas, is a much higher number in my mind than Boise, Idaho, for example. I am looking for unmet demand. Ultimately, a feasibility report will tell me, but initially, I am looking for obviously overbuilt trade areas. Radius Plus or similar services are good here.
• Population.
  • Again, I don’t have an exact number, like 50,000 people in a three-mile range like you read often. I have done very well in submarkets with less than that, but I want to see customers.
  • Remember, about 10% or so of your customer base needs self-storage at any moment.
• Population Growth.
  • I do want to see the trade area having some population growth. The more, the better. If the submarket is flat or going backward, it is usually a dealing killer for me.
• Occupancy rates and rental rates of competitors.
  • Be careful of just saying all my competitors are full, so it must be a great submarket. This can be very misleading sometimes. But I would much rather see them full.
  • More specifically, I am looking for how many, if any, facilities are in a lease-up situation (or soon to be). They will be my main competition, and odds are I will be behind them in bringing space to the market.
  • And finally, we will discuss rental rates in more detail below.

• Apartment Rental Rates vs. Storage Rental Rates
  • A fairly new metric for me. I like to see apartment rates on a per-square-foot basis higher than storage rents. This means if a person needs more space, renting storage is cheaper than moving.

3. Site Shape and Buildability
   • Site work can be one of the larger development numbers on a construction budget.Sometimes, it is hard to look at a site and know if it is suitable for self-storage, but here are a few things to be aware of.
     • Site shape and size.
       • Is the site such a shape as to lay out a faculty that works well with drive lanes, parking, or whatever you envision for your project?
       • We usually have a storage fabricator do the first preliminary layout instead of an engineer. They do it faster, cheaper, and are generally good at maximizing the land. Often, we need to scale back what they create, but they tend to be very good at maximizing what the land can offer (remember, they are trying to sell you the system to go on it, so they want to maximize it).
       • For us, usually, the more rectangular the site, the better.
       • Ensure you have enough land for any required water retention, or you may very well have to store runoff water in underground holding tanks, which can add to the development cost very fast. However, we have done that in some cases, and the projects worked out fine economically due to the demand and rents in the submarket.
     • Buildability.
       • The only way I know is when the geotech report (which tests soil compaction) comes in. If the Seller already has one, great.
     • Zoning.
       • We have never taken a site through zoning to get self-storage. I usually pass on these, but we often must get Conditional Use Permits.
       • In the very initial stages of consideration, we will get with an engineer who can tell us how potentially challenging a site may be to get approvals. If they appear to be cumbersome, we just move on. I only have a certain number of years to work and a certain number of calories I am willing to expend, and I will go to a market or site where fewer of each are required.
4. Economics of the deal

I left this for last here, but it is usually the first thing I focus on.

This is always the first step in my world, and I go no further unless it appears to work.

I am not going to take time here to go over how I determine that because I have many episodes covering this topic.

Here are a couple of links to those episodes, as well as to a course on How To Build Your First Self-Storage Facility.

Link to Get Video training series on how to Analyze Expansions & Conversions

Link To How To Build Your First Self Storage Course.

Create your profit benchmark numbers, then run preliminary proformas. If the benchmarks are hit or exceeded, move forward on the three above.

Things To Watch Out For

The two largest mistakes I see people make, including myself (I have made both of them), are these:

Number One: “I want this site because I can get the land at a good price.”

Let the site and location inform you it is a good deal, then focus on the price. I cannot tell you how many projects I looked at that should have never been built, but they were because the initial developers got a good deal on the land.

Let the market and the feasibility report tell you it is a good site, then focus on price and/or terms.

Number Two: We already own the land (or building for conversion).

 Like the first big mistake, do not be attached to a site just because you own or control it. Make sure it works for self-storage.

This seems easy to get here, but I know from personal experience that it is easy to get emotionally attached to an idea and a site because we already control it or can get a good deal on it. We then go out and find or even create data to back up our assumptions.

 None of this matters what we think about the site. The only thing that matters is whether the market rents space or parking there and at what rental rate.

Period.

These are the elements we use to consider if a site is a good one for self-storage.

The good news is, there are some really great sites out there, and someone who has a strategy and knows what they are looking for and where can find them.

Make this the year you get in or grow your self-storage business.