Through both good and bad economic times, the self-storage sector has proven to be a steady performer. That’s why so many investors want to get a piece of the action. To do so, you can either buy an existing self-storage facility or develop a new one.
If you go down the development path, one key question is: How much money will you need? There’s no simple answer to that question, as the cost can vary based on several factors, such as location and the number of self-storage units.
How much does it cost to build a self-storage facility?
Generally, you can count on a self-storage facility costing $25 to $70 per square foot to build, according to Mako Steel, whose specialties include making steel buildings for self-storage facilities.
That range can vary greatly. For instance, the cost of steel may go up or down at any given time, or the area where you’re building the facility may be experiencing a labor shortage. And, of course, you’ll certainly face higher costs in a major metro area than you would in a small community.
Finding the right site to develop a self-storage property
When you’re looking to develop a self-storage facility, you obviously must decide where to build it. Be prepared, finding a great site for storage can be tricky. You’ll need to find a site for the right price, with the right zoning, and the right demographics to support your business.
You’ll typically be hunting for 2.5 to 5 acres to accommodate the facility. Mako Steel’s rule of thumb is that the land costs should make up about 25% to 30% of the entire development budget. Of course, this isn’t a consideration if you already own property suited for a storage facility, although you still may need to go through the costly, time-consuming process of rezoning the land.
If you are developing your first mini-storage facility, you’ll most likely looking for sites in your general area. You’ll need to study the market fundamentals to get an idea of what rental rates you can charge and what type of cash flow you can expect.
Determining the scope of your self storage project
Before closing on a piece of land, you should figure out the scope of your self-storage develop project. Will you build a single-story or multistory facility? How many self-storage units will the facility maintain? What’s the total square footage you want to build?
Mako Steel says construction of a single-story facility usually costs $25 to $40 per square foot. Construction of a multistory facility typically costs more — $42 to $70 per square foot. These figures don’t include land or site improvement costs.
Estimating a construction budget for your self-storage business
Here’s an example of how the construction costs might pencil out. You’re building a 60,000-square-foot facility, and the construction budget winds up being $40 per square foot. Based on those numbers, construction would cost $2.4 million.
Again, that scenario excludes site improvement costs. Site improvement encompasses items like parking, landscaping and signage. The Parham Group, a self-storage consultant, developer and manager, says site development costs for a storage facility normally range from $4.25 to $8 per square foot. So, let’s say your facility measures 60,000 square feet and the site development costs total $6 per square foot. In this case, the development costs would add up to $360,000.
Keep in mind that a climate-controlled facility will increase the cost of construction significantly more than it would to build a non-climate-controlled self-storage facility. However, the owner of a climate-controlled facility generally can make up much if not all of the cost difference because they can charge more for units with climate control.
“Today, there are almost unlimited options in designing a self-storage building that will blend into the area you plan to build. The architectural details and finishes can significantly impact cost,” Mako Steel says.
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Building the right size self-storage facility
Investment Real Estate, a self-storage brokerage firm, emphasizes that smaller isn’t always better when it comes to building a storage facility.
Sure, a smaller facility likely will have lower building costs than a bigger one. However, the firm notes that a facility measuring less than 40,000 square feet typically isn’t as cost-effective as a facility measuring 50,000 square feet or more.
Why? In large part, it’s because the investment returns for the smaller facility normally fall far short of the investment returns for the larger facility.
A self-storage consultant can conduct a feasibility study and devise a proposed budget for a new facility. In the meantime, you can check Texas Storage Investors’ calculator for estimating construction costs.
Funding your self-storage development project
Unless you have piles of cash, you’ll need a plan to fund your self-storage development deal. Securing debt service for your self-storage project is often easier with a track record in the business, but not impossible if you don’t.
A capital advisor with a specialty in the self-storage industry may be able to help. A number of lenders provide funds for new construction of self-storage facilities including commercial banks and life companies.
Now what?
Once your facility is completed and you receive a certificate of occupancy, you are ready to open for business. Before your facility is completed you’ll need a business plan in place for self-storage operations. You may choose to manage the facility yourself.
Self-managing your own facility is not as hard as it used to be thanks to tech tools like facility management software and marketing platforms. You may also wish to hire a third-party manager to operate your facility. Once your new storage business is off to a solid start, you’ll be ready to focus on your next self-storage development project!
