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Getting started in self-storage

Like any new venture, setting up a self-storage facility or investing in self-storage requires homework – i.e. market research; a business plan; adequate financing; find (or build) the right building in the right location; plan for self-storage construction and/or fit-out; write an operational plan; and prepare marketing activities for the launch and beyond.

Market Research

Before you jump into a self-storage project, it is vital to research your market. Use demographics/market research companies (especially if they know the self-storage industry) to discover who customers are in the area. What’s the mean income, the daily traffic passing the property you want to develop? Is the area growing, and how fast? Research competitors. Are there self-storage stores in the area you’re considering? Who are they? What do the charge, their occupancy? These facts will guide you in the choice of the location of your self-storage facility. It gives a good indication on the size requirements of your store, the different sizes of storage space (also known as space mix) and the rents you can charge.

Business Plan

With the in-depth information you’ve gathered on self-storage with market research, you can start writing your business plan. This is essential if you need a bank, an investor or another party to help finance your project. They need to see the potential of your business proposal in facts and figures; a business plan does that. Include actions you need to undertake and what your future activities will be to generate a self-sustaining, growing self-storage business, so it provides the direction or strategy needed for success.

Right Location

The old adage ‘location, location, location’ certainly applies to self-storage. When you plan to build or purchase your self-storage building, it becomes a substantial asset of your self-storage business that appreciates over time; therefore – just like the real estate industry – location is vital. Even if you rent a property and convert it into self-storage, location is equally important because most users of self-storage are interested in easy access. Remember, self-storage is about convenience.

Self-storage product choice

After your location and building choice, your self-storage product choice is one of the most important choices you will make regarding your self-storage business.

Your choices will impact throughout the business cycle:

  • Pre-investment period: A knowledgeable self-storage product supplier can design an optimum storage-unit layout (the space mix) for your facility; supports/leads building compliance submissions and provides consultancy on all aspects of your self-storage investment.
  • Investment and build period: Ease of installation/fit-out ensures timely project execution so you will be operating as scheduled with no surprises.
  • Operational period: High-quality, durable, hi-tensile steel self-storage partitions and hallway panels ensure low maintenance and keep your facility looking good for years.
  • Exit period: Using second-rate materials can be disastrous when selling your business. A top-rate self-storage product will be recognised in the due diligence and/or valuation process. Using the products of a self-storage product supplier renowned for using quality materials increases the value of your business and help facilitate a profitable exit.

Self-storage set-up budget

Which items should you budget for when you set-up a self-storage business? Aside from the purchase or rental cost of your self-storage building, you’d need to consider the following scope of works:
 
External building requirements
  • Painting
  • Branding/signage
  • Car park
  • Landscaping
  • Fencing/security
  • Other
Internal building requirements
  • Insurance
  • Building permits and planning permissions
  • Demolition
  • Light construction works
  • Air-conditioning
  • Painting
  • Branding/signage
  • Self-storage partitioning and self-storage doors
  • Fire-rated doors
  • General electrical works
  • Possible fire-safety upgrades, e.g. fire hose reels, smoke purging
  • Security and access control
  • CCTV and monitoring
Self-storage facility set-up
  • Self-storage management software
  • Retail and merchandise office
  • Display
Our list is not extensive, but it'll give you an idea of what’s required for a self-storage brownfield site. If you have a building, ask us for a turnkey service quotation so that you can present an accurate budget.
 
The scope of works change significantly for a greenfield site. As building materials and labour costs differ hugely worldwide, we’ve not included an example. But talk to us if you’re considering a greenfield site and we’ll help with your budget.
 

Financing self-storage facility set-up

Usually in self-storage you see these financing scenarios:
 
  • You or your company/partnership has equity for the set-up of a self-storage facility or to buy an existing self-storage facility.
  • You or your company/partnership own land or a building that can be leveraged against a bank loan (or obtain a bank loan through other means) to build on or convert to self-storage.
  • You are backed by other individuals, single or multiple fund-based entities, a partnership of funds (or yet another backing solution) to set-up or buy an existing self-storage business.
Continued growth
    When your self-storage business grows and you want to expand, you have other options to raise capital. Many larger self-storage businesses started with a single site and, as it grew, they gained considerable wealth by using one of these popular financing options:
     
  • As a recognised self-storage operator, you could use debt financing to support expansion. Secured mortgages are available as with any real estate acquisition. Some banks also fund the capital investment of the construction or fit-out.
  • Involve other private shareholders – this is easier once you have one or two sites in operation. Many private equity funds and other large investors see self-storage as an attractive addition to their portfolios. A profitable self-storage operator is in a good position to attract capital.
  • IPO (initial public offering) or stock market launch – sell shares in your company to the general public to raise expansion capital.
  • Convert your business into a Real Estate Investment Trust (REIT) as a sponsor and/or sell/lease-back your underlying asset to a REIT to generate growth capital. A REIT is a company that manages a portfolio of real estate to earn profits for shareholders. REITs can be publicly or privately held and public REITs may be listed on public stock exchanges. REITs can be very tax efficient, as the property company pays no corporation or capital gains on profits made from property investment. Each country has its own criteria for REIT conversion, for example, a certain percentage of revenue must be derived from rents and/or a certain percentage must be paid out to shareholders.

Execution

The executional and operational stages of your self-storage project come after you’ve built or secured a building and make your project real. These are the stages that involve much hard work and dedication. During the planning and budgeting process, you’ll have decided how involved you want to be in these two stages.

  • Structural engineering: To ensure floors in your building can support the fit-out of the self-storage infrastructure and the items to be stored.
  • Fire safety: Fire-safety standards needs to be up to code for any self-storage building.
  • Architectural design: Layout of your self-storage units – create a self-storage space mix that meets the building requirements in your country.
  • Mechanical ventilation and electrical design: Installation of mechanical ventilation; electrical design to support general power, lighting, air conditioning.
  • Planning approval: Obtain all the required building and planning approvals required in your country.
  • Building preparation works Including: demolition, waste disposal, fire-safety installation, minor construction (e.g. mezzanine and compartmentalisation), industrial painting of walls and floors, installation or upgrades of lifts, implementation of mechanical ventilation and electrical design.
  • Manufacturer of self-storage partitions/doors: Use a recognised manufacturer of self-storage products to ensure easy fit-out, low maintenance and to add greater business value to sell your company later.
  • Self-storage construction: Use an experienced construction company to make sure that the fit-out of the self-storage partitioning system is done to time and budget.
  • Project management: Coordinate all vendors and interfaces to ensure timely and cost-efficient fit-out and construction.
  • Security systems: It’s advisable to use an access control and security system that integrates well with your chosen self-storage management software.

Operation

The executional and operational stages of your self-storage project come after you’ve built or secured a building and make your project real. These are the stages that involve much hard work and dedication.
  • Have self-storage insurance for customers in place.
  • Choose a quality self-storage management software package, preferably one with invoicing capability.
  • Ensure the self-storage management software is compatible with your security and access control software.
  • Set up a retail office of at least 500 square feet (50 square metres) that is appealing for customers, where they have a place to sit down to enquire about, or sign up for, a storage space.
  • Also use the retail office to present your supplementary merchandise, like boxes, tape, padlocks, self-storage shelving, etc.
  • Have load handling equipment in place – trolleys/pallet jacks.
  • Have a storage rental agreement/licence in place that is legally-recognised in your country, so you can sign-up customers from day one.
  • Hire (experienced) staff trained in customer service. Have them wear branded clothes to promote a professional look.
  • Ensure that all personnel understand your operational processes and procedures.
  • Market your facility
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