When considering a self storage conversion, it’s important to understand the most essential factors that either make or break the project. These factors include building requirements, market demand and financial feasibility. In this article, we will discuss how to maximize ROI when converting a building into a self storage facility. We’ll also review the key considerations to be taken into account before embarking on a self storage conversion project.
Is the Space Suitable for a Self Storage Conversion?
When considering a building for a self storage conversion, it’s essential to evaluate the space’s suitability. Conversions require space that can be reconfigured to accommodate the storage needs. The reality is, not all buildings are up to the task. For instance, retail buildings that have high ceilings and large, open floor plans are perfect for self storage. Due to the attributes of retail spaces, it means that they can easily be partitioned to create individual storage units of varying sizes. Buildings with low ceilings, cramped spaces, or irregular shapes may not work as well, and will likely require significant modifications to make them suitablefor self storage.
Before starting the conversion process, it’s crucial to bring in an expert who can assess the building’s structural integrity, electrical, roof and ventilation systems. This will ensure the building is suitable for conversion, and identify any issues that need to be addressed.
By taking the time to assess the suitability of the space, you’ll be able to avoid costly mistakes that could affect the success of your self storage facility. When it comes to self storage conversions, choosing the right space is the first step in maximizing your ROI and ensuring that your investment pays off in the long run.
Market Demand for Self Storage
Before converting a building into a self storage facility, it’s important to consider the market demand for self storage. This involves researching the demographics of the surrounding community and assessing their storage needs. Are there a lot of homeowners, renters, or businesses in the area? Is the market anticipating future growth, or is the population in decline? Do household incomes support the proposed rental rates needed for profitability? Is there a high enough population in a 1, 3 or 5-mile radius to support a reasonable lease up period? Have market rental rates been rising or declining over the trailing 24-months?
It’s also important to look at the existing self storage competitors in the market to ascertain occupancy, rental rates and discounts being offered. If there is a lot of competition, or future inventory coming to the market, it may be more difficult to fill your new facility to maturity. Speak with local and surrounding zoning departments to learn more about future self storage projects that may be in planning and permitting phases. On the other hand, if there is high demand and limited supply, a self storage conversion could be a great investment opportunity!
Self Storage can be particularly attractive for people who live in urban or densely populated areas, where space is a premium. With limited space in apartments and houses, many people turn to self storage to store items that they don’t use regularly, but still want to keep. Converting a building into a self storage facility can also be a great opportunity to rejuvenate an abandoned building and improve curb appeal for the area.
Financial Feasibility
One of the most critical aspects of converting a building into a self storage facility is ensuring that the project is financially feasible. While conversions can be a great investment opportunity, it’s essential to conduct a thorough financial analysis and feasibility study before proceeding with the project. The first step is to determine the total cost of the project, including acquisition costs, renovation costs and approval and permitting costs. Once you have a clear picture of the total project costs involved, you need to assess whether the expected return on investment justifies moving forward. You should consider several factors when assessing the financial feasibility of a conversion, such as the projected rental rates, ancillary income, operational expenses and how property taxes are calculated today and in the future.
A favorable aspect of converting a building to self storage is that they are generally less expensive and faster to develop, versus ground-up development. As a result, due to lower development costs and speed of delivery, the ability to reach break-even on a conversion project may occur much faster than a typical land development project.
Finally, you need to assess the overall economic environment and local market conditions. Are interest rates, and rising material costs, reducing project returns to a point that the facility should not be built? Or, is market demand for the facility so strong, and rental rates so high, that the project is worth building despite an unfavorable economic environment? Overall, the financial feasibility of a conversion is an essential factor to consider when planning a self storage project. Careful analysis and planning can help you minimize risk and maximize ROI.
Zoning and Building Regulations
Before converting a building into a self storage facility, it’s important to understand the zoning and building regulations in the area. This is especially true if you plan on making major structural changes. Zoning laws can vary widely from one location to another. These laws can dictate what types of businesses can operate in certain areas. In some cases, the zoning regulations may prevent you from converting the space into a self storage facility altogether. It’s important to research the local laws and regulations before making any significant investments in the project.
You will also need to ensure that your building meets all of the necessary building codes and safety regulations. This may include installing sprinkler systems, smoke detectors, and other safety features.
Additionally, building regulations may dictate how the building can be used and how much space can be allocated for different types of storage units. Be sure to consult with local building officials to ensure that you are in compliance with all applicable regulations.
Overall, understanding zoning and building regulations in your area is critical when considering a future conversion. Taking the time to research these factors upfront can help you avoid costly legal and financial complications down the road.
Design Considerations
When it comes to converting a building into a self storage facility, the design of the space is crucial for ensuring a successful and profitable conversion. Here are some key design considerations to keep in mind:
1. Maximizing Space Utilization: One of the main benefits of conversions is the large amount of existing space available. However, it’s important to carefully consider how that space will be laid out in the building. This means planning for efficient storage layouts where larger units are closer to entrances and smaller units are closer to the center of the building.
2. Climate Control: Depending on the location of the building and climate in the area, climate control may be necessary to protect customers’ stored items. This may involve installing HVAC systems, insulation, or other measures to maintain a consistent temperature and humidity level within the facility.
3. Security: Security is a top priority for self storage customers, and design of the facility should reflect this. This may involve installing security cameras, access control keypads, gates and well-lit hallways. It’s also important to ensure that the layout of the facility makes it easy to monitor and secure the premises.
4. Accessibility: Customers should be able to easily access their storage units, so the design of the facility should allow for convenient and efficient movement throughout the building. This may involve adding ramps, elevators, or other features to ensure tenants can easily move their belongings.
5. Branding: While the focus of the conversion may be on maximizing the functionality of the space, it’s also important to consider the branding of the self storage facility. This may involve adding signage, landscaping, logo creation, or other elementsto create a professional and inviting facility. By carefully considering these design considerations, conversions can be transformed into successful and profitable self storage facilities that meet the needs of customers in the area.
Highly experienced developers that invest in other real estate investment spaces have a notion that developing self storage or converting an existing space is simple. However, there’s more to it than meets the eye. Understanding if a conversion can be done, should be done and if future returns are in line with the developers’ investment goals can be quite challenging. The self storage industry has many wonderful and experienced professionals that can guide investors knowledgeably so that your future self storage conversion project is successful.
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Kevin Bledsoe is a 17-year veteran in the self-storage industry and has worked in many facets of the business including; brokerage, operations, consulting and development. He is currently an agent with Marcus & Millichap and can be reached for advice on your next self storage project at kevin.bledsoe@marcusmillichap.com.