Urban Storages Make a Killing

When storage units cost as much as an apartment...

August 16, 2024

The principals of Mason Equity partners have been investing in Self Storage since 1996, first with Gray Cardiff at Sound Advice and now with a $4 billion Institutional Private Equity Fund.

In this article we'll explore how urban locations make for extremely profitable self storage facilities, and why developing in cities is worth the headache.

Cities Make Great Places to Build Self-Storage

Urban self storage locations command the highest investment valuations and tend to hold their value in both up and down markets. Small storage owners love suburban and rural locations for their high yields and low barriers to entry, but often suffer the largest losses when their valuations drop in a downturn. . Building and operating self-storage facilities in cities can be more complex, but the rewards are significant. In this article, we'll explore why urban self-storage can be a lucrative investment, the difficulties involved, and strategies we’ve followed for success.

Three Reasons Why Urban Areas Are Attractive for Self-Storage

High Demand & High Rental Rates: Urban areas are full of people living in smaller spaces with limited room for their belongings, driving the demand for self-storage. Due to the scarcity of space and high demand, self-storage facilities in urban areas can charge premium rental rates. This translates to higher revenue per square foot compared to suburban or rural locations.

Strong Business Demand: Urban areas are hubs for businesses, many of which require extra storage for inventory, documents, and equipment. Tertiary storages depend more heavily on home sales activity and migration, whereas urban locations can enjoy a reliable source of commercial clients.

Barriers to Entry: Urban land is expensive to buy, expensive to build on, and requires cumbersome approvals that novice developers struggle to obtain. This reduced competition creates higher values for facilities that can overcome these barriers.

How to Succeed in Urban Self Storage Development

Maximize Rentable Area: Urban self-storage facilities need to make the most of every square foot in order to justify the high costs and long timelines involved in constructing them. We build our facilities with multiple stories to maximize use of the site, and optimize our layouts with a variety of unit sizes to squeeze the maximum amount of rentable out of each floor.

Select a Retail Location: Choosing the right location within an urban area is crucial. We look for locations with high population densities, high traffic counts, and lots of apartments. The ideal facility is located along a major retail thoroughfare with convenient access for customers to store their belongings.

Know the landmines: They call them barriers to entry for a reason. We focus on markets where our experience and relationships give us a competitive advantage in navigating lengthy permitting and construction processes. In urban development, huge sums depend on the discretion of government bureaucrats. You need to understand the process and have the relationships to influence it in order to succeed.

Conclusion

Urban self-storage offers the potential for premium rental rates and strong occupancy. Establishing self-storage facilities in urban areas comes with its share of challenges, but the opportunities for high returns make it well worth it.

Self Storage, like any other real estate investment, requires active management and substantial capital to succeed. Mason Equity Partners seeks to provide attractive risk-adjusted returns through investments in Self Storage facilities in the United States.

If you are interested in investing in Self Storage, but lack the time and/or the capital to purchase a facility on your own, passive investing with a professional operator could be the right solution for you.

Best,

John & Shane Mason