In an unusual turn of events, a developer attempting to build a self-storage facility near Atlanta recently lost a land use battle to a strip club.
Scott Zucker, a shareholder at Weissmann Zucker Euster + Katz P.C., represented the developer in this case, highlighting the surprising outcome at Bisnow’s Atlanta State of Storage Assets conference.
“The community had a choice between a strip club and a self-storage facility. They picked the strip club,” Zucker remarked, emphasizing the unpredictability developers face in navigating local preferences.
This incident exemplifies a growing trend of community resistance against the proliferation of self-storage facilities across the U.S.
In recent years, many communities have enacted zoning restrictions targeting the growth of self-storage developments, and more are considering similar measures.
As a result, developers are encountering significant pushback as they attempt to expand their presence, which in turn is driving up project costs.
Robert Fransen, President of Coro Realty Advisors, shared insights on the challenges developers face during a discussion at the W Atlanta Downtown.
“The biggest issue we’re running into is just the approvals. Everybody loves the idea of self-storage, the way they love affordable housing in your neighborhood: not mine,” he said, reflecting a common sentiment among communities.
Fransen further noted that this resistance isn’t limited to any particular type of community, stating, “It doesn’t matter whether it’s urban or suburban. To us, at least, that has been the biggest impediment to getting these things built. It’s not cost. It’s not labor. It’s really just, can you get the entitlements?”
This ongoing pushback comes even as the self-storage industry shows signs of recovery from a recent performance slump.
Although self-storage REITs reported a 1% decline in net operating income and a decrease in advertised rents by 40 basis points year-over-year in the first quarter, a Yardi Matrix report indicates that market conditions may be improving as the decline in rents is beginning to decelerate.
Notably, half of the markets tracked by Yardi Matrix experienced rent increases during this same period.
Moreover, investment in the self-storage sector is on the rise after a decline the previous year.
According to a report by Newmark, self-storage REIT stocks outperformed expectations in the first quarter of 2023.
However, municipal and county opposition continues to impede the sector’s development.
Currently, approximately 55 million square feet is under construction in the U.S., which is equivalent to 2.8% of all existing self-storage facilities.
This marks a 10-basis-point drop from April to May and suggests that the slowdown may persist in the coming years.
For operators within the self-storage industry, this development slowdown could be viewed as a blessing, particularly for those based in the South and Southeast.
These areas have been grappling with a surge in supply growth over the last decade, leading to lower rents and even the abandonment of some projects.
Raj Sheth, CEO of Boardwalk Development Group, stated, “Development has also gotten harder. Communities have made it harder. Costs have made it harder. But because of this, the future looks bright.”
Sheth, who operates 10 self-storage facilities, including locations in Hiram, Canton, and Cumming, noted that decreased competition will benefit operators.
He explained that once occupancy reaches a certain level, it allows for rent increases.
The industry is also seeing changes in pricing models due to recent consolidations within the REIT sector.
For instance, Extra Space Storage’s acquisition of Life Storage in a deal valued at $12.7 billion has led to shifting dynamics in pricing among self-storage operators.
Sheth mentioned that this merger has sparked a pricing war, as Extra Space intensifies its efforts to boost occupancy rates.
He pointed out, however, that this push has “completely changed the pricing model” in the currently fluctuating market.
To attract new customers, operators are offering low rates, but the nature of self-storage often means these customers are likely to stay put, leading to consistent long-term rental income for facility owners.
Fransen elaborated on this, stating, “It’s true in the sense of the street rents, the new customer rents are down. In fact, they’re probably down more than 9%, I would argue, in a lot of places.
However, he noted that in-place rents typically exceed the new street rents due to customers entering facilities under discounted rates that increase over time.
According to the Self Storage Association, 11% of U.S. households utilized self-storage space in 2024, up from 9% in 2017, demonstrating a growing need for such facilities as household sizes decrease.
Sheth highlighted this trend, remarking that as more households begin to relocate with the anticipated decline in interest rates by the Federal Reserve, the demand for self-storage will likely increase even further.
Moreover, shrinking median home sizes—down from 2,400 square feet in 2015 to more than 2,100 square feet in 2024—further contribute to the necessity for storage solutions for families.
“Once you move in [to a self-storage facility], you close that door, you lock it, you don’t come back for two years, right?” Sheth explained, emphasizing the tendency for customers to remain loyal to their storage facilities despite fluctuations in market prices.
image source from：bisnow
