What Does It Cost to Build Self Storage?
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 to build 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?
The current rule of thumb for land cost is 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.
In many markets, land use is maximized by developing multi-story self-storage with two-stories and even three- and four-story facilities.
Ultimately, the rental rates in the market drive the cost that a self-storage developer should pay for the land. Often, the most common cost/operating ratio of self-storage is in line with apartment rental rates. Depending on the location, self-storage projects can generate the same income per square foot as medium priced apartment properties in the same market area. And they can achieve this income at roughly one half the construction and operating costs.
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 ranges between $25-$40 per square foot – not including land or site improvement costs.
Multi-Story Self Storage Building Costs have more variables and can range from $42 per square foot to as much as $70 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 60,000 - 80,000 net rentable square feet, cost $45-65 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.
Download our Self Storage Planning Guide and Worksheet for more comprehensive information.
1.) Locate a Property. Think location, location, location.
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. Mako Steel 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 and Worksheet 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 Mako Steel can help you find a loan for your next Self Storage project.
8.) Build. Contract with a professional self-storage construction company who understands the self-storage business. Download our paper on Avoiding the Most Common and Costly Mistakes in Self Storage.
9.) Market. Get your website up, take out some ads, do some online marketing to get the word out.
10.) Make the Big Bucks.
It seems so simple. And it can be. Work with professionals in the Self Storage industry to insure 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.