Wanting to know what it costs to build self storage facilities is often the first question a new investor asks. It seems like a simple question, but once you delve a little deeper, you will find that there are a lot of variables that make that question hard to give an easy answer to. Location, design, zoning restrictions, site improvements needed, etc., will all impact the costs of building your self-storage facility.
A better question might be, “How much do I need to invest and what research do I need to do in order to ensure profitability in a new self storage business?”
That being said, we will give some high-level answers to the self storage cost question in this article.
What Should I Pay for the Land?
There used to be a current rule of thumb back in the early 2010’s that land costs should be approximately 25-30 percent of total development cost. At $1.25 per gross square foot and assuming 40 percent coverage, net cost for land is $3.13 per rentable foot of building. This is no longer the case due to the now multitude of variable parameters and dynamics of individual markets.
In today's development climate, it is crucial for developers to ensure that land costs do not lead to low income after accounting for debt obligations. Conducting a thorough feasibility analysis helps determine the market's capacity and the rental rates based on the type of self-storage and unit mix. This analysis enables developers to assess whether their pricing is too high or too low, ensuring they strike the right balance to avoid financial strain and maximize profitability.
By aligning land costs with market expectations, developers can make informed decisions and set appropriate pricing that supports their business goals. Jo Beth White from Development Services, a longstanding reputable feasibility consulting firm humorously remarks, "I mean I've got some folks that are looking at pieces of dirt that 10 years ago would have just terrified the developer, but nowadays, the rental rates are demonstrating a positive support." She also emphasizes, “A certain amount of return based on the cost of construction, cost of land, and other soft costs, plus developmental fees vary from client to client. Some clients don't mind a lower return because they're looking at the depreciation, while some clients don't care about the depreciation as much as they want return, so it's even different from study to study with what the client's situation is and what the goal of the client is.”
With the previous rule of thumb for the cost of land no longer a constant, getting a feasibility report is as important as ever to make sure you are making the best choices.
Costs to Build Self Storage
To give you even ballpark costs, we will need to know if you are planning to build a single story or a multi-story facility.
Costs for Single Story Self Storage Construction typically range between $50-$65 per square foot – not including land or site improvement costs.
Multi-Story Self Storage Building Costs have more variables and can range from $85 per square foot to as much as $110 per square foot. Today, there are almost unlimited options in designing a self-storage facility that will blend into the area you plan to build. The architectural details and finishes can significantly impact cost. Land costs and site improvements will also impact your initial investment.
The most common "state of the art" facility will be about 120,000 - 150,000 net rentable square feet, cost $90-$120 per square foot to construct (outside of existing land costs), and have break even operating expenses in the 40-60 percent range (not including debt service) of total stabilized income. A well designed and located facility will successfully operate in the 83-93 percent occupancy range, though we have seen successful self-storage operations with occupancy rates as low as 70%.
It often takes 18-24 months for many self-storage facilities to realize its full income potential in a competitive market.
What Steps Do I Take to Ensure Profitability?
Now for that second and more important question. As an investment or as a new business venture, self storage is a winner. Without overhead in inventory, staffing, or a lot of operational equipment, self storage has a relatively low barrier to entry. But self storage is a business and must be evaluated in the same way you would evaluate any other business.
Fortunately, self storage development is not complicated. Follow the steps outlined below and you will be able to access the potential for your market and plan for your new venture.
1.) Locate a Property. Think location, location, location. Check out our guide to determining the capacity of your self storage project.
2.) Complete a Market Analysis. Know your competition, occupancy potential, and the special requirements of your market such as Climate Controlled Self Storage or Boat & RV Storage, etc. MakoRabco can refer to you industry professionals to assist you with a comprehensive feasibility study.
3.) Calculate Your ROI. Put all of your competitive, demographic information, estimated start up and operational costs on a spreadsheet and make sure that the numbers show you can generate the revenue and profit you need. Download our Self Storage Planning Guide here, and our Planning Worksheet here to help you with this critical step in planning.
4.) Contract an Architect. Depending on where you plan to build, there may be specific requirements from your permitting department or architectural details you want to include in your building design.
5.) Create a Construction Budget. Work with a professional self-storage building company to develop your site plan and come up with a complete estimate. For a low-cost Site Design and Estimate – Click Here.
6.) Secure Financing and Purchase. Contact us to find out how MakoRabco can help you find a loan for your next Self Storage project.
7.) Pull Building Permits. Learn how you can navigate through the red tape and overcome being denied a Self Storage Permit when dealing with the city.
8.) Build. Contract with a professional self-storage construction company who understands the self-storage business. Check out some of our completed projects here.
9.) Market. Get your website up, take out some ads, do some online marketing to get the word out. Join your local state self storage association. You can check out a list of upcoming state self storage events and trade shows here.
10.) Make the Big Bucks.
It seems so simple. And it can be. Work with professionals in the Self Storage industry to ensure your success. If you have more questions, don’t hesitate to give us a call. With over 20 years in the business, we are happy to share our experience and expertise. We hope we have given you what you need to start answering the “What Does It Cost to Build Self Storage?” question.