2024 Self-Storage and Boat and RV Storage Construction Costs

In this article, we explore the current economic landscape and construction outlook of the storage industry, as shared by four experts in the field. Their insights shed light on the positive and negative impacts of economic variables, including interest rates, material prices, labor market conditions, and other essential factors affecting construction expenses.

High Interest Rates

With interest rates skyrocketing after years of stability, new projects are becoming financially unfeasible, leading to a shift in development strategies. The COVID-19 pandemic has reshaped the real estate landscape. The crisis led to a surge in construction, but the market is now settling back into a more typical pattern.

David Langendorfer II, a developer at Signature Storage Investments in Ohio, accentuated the difficulty of starting a new project with an acceptable debt service coverage ratio while the interest rates were so high. His company has shifted to a strategy of implementing smaller, more manageable phases of construction and using higher collateral to mitigate prepayment penalties. Banks, in response to heightened economic uncertainties, are adopting more stringent approval processes, adding layers of complexity to project financing.

Angie Guerin, Vice President of Business Development for Mako Rabco, a nationwide company that specializes in self-storage design, supply, and installation, suggests that the rush in the previous year was an anomaly, with a current momentum swing towards a more regular development pace. “It just lends itself to that discussion on going through the feasibility process a little bit more robustly right now, and making sure that you’re building in a market that is going to support the development of those dynamics at play.”

The supply chain has been stabilizing and some basic material prices, such as steel, have come down substantially over the past two years. However, labor prices remain high, posing a challenge for the industry. Langendorfer highlights the persistent increase in concrete costs, offsetting some of the benefits gained from other materials softening.

“Shipping costs have come down, but there’s a shortage of skilled trades, which is what we need for self-storage,” Langendorfer said. “It’s really affecting the construction. There are a lot of things that aren’t starting until interest rates and labor costs come down.”

Although labor costs are high, Guerin thinks they are more stable than the first quarter of 2023. “I don’t see a profound softening in labor costs in response to where the market is going this year,” Guerin said. “I do believe that we’re going to stabilize this year at a little bit of a higher cost per square foot for labor than what we’ve seen in years past.”

Managing budgets

Developers, architects, and contractors are grappling with challenges that impact project timelines, budgets, and overall feasibility. Amidst these challenges, innovative strategies and industry insights offer avenues for managing costs and optimizing project outcomes.

Minimizing costs is essential when labor and materials are priced so high.

Guerin advised that hiring experienced engineers and architects can save costs when starting construction. Projects overseen by seasoned professionals tend to exhibit greater economic viability, as they leverage deep industry insights to navigate complexities and streamline processes. Strategic planning and proactive risk management can mitigate financial uncertainties.

Ted Culbreth, Vice President of Sales and Marketing at SBS Construction, agreed, elaborating that having a designated team in place from the beginning stages of development can minimize time, since time is typically the costliest part of projects. Engaging with consultants who possess specialized knowledge in self-storage design can yield significant long-term savings by avoiding costly redesigns and structural inefficiencies.

“I would recommend finding a civil engineer that has local contacts and getting a storage architect that has worked in the area,” Culbreth said. “It should be a very seamless process of handing the project from the developer to the civil engineer to the architect to the general contractor to start construction. Have weekly meetings with the project managers to see what they’re going to be doing in the next three weeks or next month which can help identify a problem when it’s in its infancy.”

Navigating Regulatory Changes

Changes in building codes and environmental regulations can introduce additional obstacles for developers. States adopting higher energy efficiency standards or stricter zoning requirements necessitate proactive planning to ensure compliance without compromising project feasibility.

Jamie Lindau, National Sales Manger for Trachte Building Systems - one of the largest manufacturers of steel self-storage systems in the industry – said project approvals, on average, take about nine months so it is important to understand the market to determine where projects would be viable.

“I can find areas that would be lovely to build, but can you find a parcel to build? That’s the hard part,” Lindau said. “It’s easy to find sites that would work, but the city won’t let you. It’s already happened in most states, so I think most people would just appreciate the reassurance that it won’t change again soon.”

However, amidst regulatory challenges, there are instances where codes evolve to benefit the industry. For instance, recent leniencies in building codes allowing for more favorable structural configuration present opportunities for innovative project designs, such as four-story storage facilities as opposed to three.

In response to evolving market demands, developers are exploring diversification strategies, including incorporating boat and RV storage facilities alongside traditional self-storage units. However, such diversification necessitates careful site selection and comprehensive feasibility analysis to assess market demand and infrastructure requirements.

In conclusion, navigating self-storage construction costs in 2024 requires a nuanced understanding of labor dynamics, regulatory frameworks, and market trends. By adopting proactive strategies, engaging experienced professionals, and leveraging innovative approaches, developers can optimize project outcomes and navigate challenges effectively in the ever-evolving landscape of self-storage construction.

Join Sensei Katherine as she moderates a panel of industry leaders at the 2024 ISS World Expo at Caesars Forum Conference Center in Las Vegas on Wednesday, April 3 at 10 a.m.. Click here for more information: https://ge24iss.mapyourshow.com/8_0/sessions/session-details.cfm?scheduleid=41