How It Compares

Self Storage Versus Other Types of Real Estate

To effectively evaluate self storage, a thorough investor will want to know how self storage compares to other types of real estate such as multi-family, office, or retail. After comparing, you will find that there are many advantages that self storage offers. Key advantages that I want to highlight involve development costs, operating expenses, break-even, and management. How these can affect overall performance is important to understand. In addition, I also want to touch on how self storage responds to common economic fluctuations. So let’s get started.

Who has the advantage?

	Self Storage	Multi Family	Office Retail	Retail
Development Cost
Operating Expense
Break Even
Management
Economy Fluctuation

Self storage developers want to locate their facilities in the exact same areas as developers of the other types of real estate. However, we benefit because there are usually lower priced building sites in these same areas that are either irregular-shaped or have topography challenges that may only be suitable for self storage. This is because self storage building layout and design can adapt to such challenges while maintaining land use efficiency.

Self storage typically has lower development costs per square foot, yet can generate comparable rental rates per square foot. Improvement costs for self storage generally run half of what it costs to construct the typical retail and multi-family buildings. Multi-story office buildings often cost more than twice what it costs to construct self storage buildings. Yet, when there is the typical demand for self storage in these areas, you will often find that rental rates per square foot may be just below or even as high.

Self storage has lower operational costs. Operating costs for self storage generally fall between $3 and $4 per square feet. The others fall somewhere above $4 to over $6 per square feet. Just consider the plumbing, electrical, landscaping, and other maintenance costs that the others are faced with. Often times they must employ full-time, dedicated maintenance personnel just for day-to-day matters.

To further distinguish, the success of a self storage facility is rarely dependent upon a single tenant. Even the largest customers rarely represent more than two percent of the overall occupancy. When a customer vacates, you merely check the light bulb, sweep out the unit, and it is ready for the next. Self storage tenant turnover costs are minimal. You don’t have people living on your site or working in it every day. It is a very quiet operation that does not cause great wear and tear.

With comparable rental rate structures and lower operating costs, break-even occurs sooner. This means cash is flowing out more rapidly. Higher net operating margins result in lower default rates. Overall, the risk is simply lower.

Managing the day-to-day operations of a self storage facility is comparably easy. As mentioned, the facility does not have tenants living or working on site. There are not overnight plumbing problems or emergency air conditioning issues that are causing people discomfort. Leasing, routine maintenance, and security monitoring usually require no more than two people. One of these two may even be part-time. If access onto the facility is restricted overnight, the rent continues to be charged; yet the facility, in essence, goes to sleep.

Self storage is distinctive due to the variety of solutions it offers to its consumers. This allows the business to succeed during economic upturns and downturns. People turn to self storage when they are in transitions caused by economic changes. For example, when people are upsizing into a larger home, they often put their stuff in storage while waiting to close on their new place. People who have lost their jobs will often move into a smaller place forcing some of their belongings into storage.

Changes in the economy also influence how businesses utilize self storage. As they grow, decision-makers will often expand their operations into storage facilities before they move into larger buildings. Businesses that are downsizing will often reduce their overhead by replacing their expensive office storage areas with more cost effective self storage space.

Self storage is helping real estate investors achieve a wide variety of investment goals. Considering all of the advantages that self storage offers over other types of real-estate, it is truly worth looking further to see how it can help to achieve your goals.