It was good to be back in Las Vegas at a self storage convention. I didn’t realize how much I missed it until I was there.
Here are a few takeaways from being there that may serve you as you grow or get in this fantastic business of self storage.
Construction
One of the main topics of conversation all week was construction cost.
To a large degree, our industry’s success is part of the issue here, in my opinion.
When the pandemic hit, certain parts of the manufacturing supply chain began to shut down. Not just for self storage, but for every industry.
Then around the third quarter of 2020, as self storage occupancy began to go up and rates began to rise, it became apparent once again that self storage is a very resilient sector to be in.
CAP rates stayed low or went lower, causing pricing for existing self storage for sale to soar. People like us can’t buy them and make any financial sense, so we do expansions, conversions, or new construction.
However, the disruption in the supply chain, coupled with tariffs, steel prices all caused prices to soar. Lumber has as well as you hear in home construction.
No one has been able to ramp up to meet the level of demand for self storage fabrication.
The number bantered encompassing during the convention from our fabricators is a 40% increase in production cost since Jan 2021.
This obviously makes budgeting and construction costs for many of our value-add plays a moving target.
What to do?
We are:
- Increasing our contingency number.
- Checking in early and often with the fabricators as we analyze and move towards a project.
- Being very careful about the size and time periods we are factoring in as we analyze our value-add plays that involve construction, which for us is most of them.
So don’t just take a per square foot number you have used for construction before and assume it is correct today. My guess is the materials cost is affecting an overall expansion construction budget by at least $7 per square foot or so.
Trade Area Footprint
The other takeaway for me was the fact that a digital footprint can be much larger than a typical self storage trade area.
I intellectually knew this but realized I have been old-school in my thinking about traditional market trade areas always being 1 to 5 miles.
I am not saying this has changed significantly, but I realize that one can enlarge the trade area by effectively increasing it through good digital marketing.
I have experienced this with parking before.
I know I can increase the trade area for a facility by having parking. People will travel further for a good parking space for their toys than the traditional self-storage customer.
But I saw people who were doing it with their digital marketing as well.
I am going to:
- See what our real digital footprint is per facility.
- See what our competition’s is.
- See how to increase it and what effect it may have on ROI for our ad spends and physical occupancy.
Conclusion
These were my big takeaways from the week in Las Vegas.
Just be careful and increase your construction budgets when you do preliminary analyses looking at opportunities. Don’t just sit on the sidelines and wait.
Yes, it may mean you do fewer deals now, but there are still opportunities out there. As I write this, I am in Florida looking at one now. SGO for them, but use what we have learned to be smart and strategic.
