Building self-storage facilities is all the rage. But experts say it won't be long before some are forced to pack it up
It’s Wednesday morning and things are picking up inside a bustling Honolulu building. At one end of the hall, a young woman is busy multitasking, alternating between hand-crafting jewelry and taking orders for her custom wares. Next door, a pharmaceutical rep is unloading boxes of the latest and greatest prescription drugs. Downstairs, a small-business owner informs the front desk staff he’ll be booking the conference room for an afternoon meeting. Meanwhile, the air conditioner is blasting, the security guards are smiling and the coffee is fresh.
No, this ain’t downtown Honolulu’s Pauahi Tower, ladies and gentlemen. It’s Salt Lake, and it’s the new face of self-storage facilities, which aren’t just for storing things anymore.
“Before, self storage was either a row of storage lockers on some asphalt, or a retrofitted warehouse. It was dingy and uninviting,” says Mike Wood, principal of MW Group Ltd., which owns Hawaii Self Storage. “Now, there are some very clean, state-of-the-art facilities. It’s a whole different business.” One that more and more real estate developers seem anxious to jump into.
Covered parking, mailboxes, business centers, conference rooms, receiving services, professional landscaping and 24-hour access, air-conditioning and security are all a part of Hawaii Self Storage’s strategy to chip away at the competition —neighborhood by neighborhood. On top of its Salt Lake and Pearl City locations, the company will open a Kaimuki facility (directly across the street from an existing Public Storage building) this fall, and has plans to open two more facilities in Kapolei and Mililani in mid-2007. Its plans are for eight by 2008.
Today, new public storage facilities can be found far from Honolulu’s industrial core. Besides Kaimuki and Pearl City, they are also coming up in neighborhoods such as Hawaii Kai and Waipio. The growth has been staggering. In just the past two years, the number of facilities in Hawaii has jumped 26 percent, from 57 to 72, according to the “Self Storage Almanac.” The reason, experts say, is simple supply and demand.
“Two years ago, the Self Storage Association finished one of the most in-depth studies they’ve ever done. They analyzed the entire national market by determining the amount of square footage of self-storage space per capita. At the time, they announced the national average was about 5 square feet per person, and Hawaii had about 2 [square feet per person]. So all of a sudden the Mainland guys hear, ‘Hawaii’s an underserved market,’ and everybody and their brother came running to Hawaii,” explains Wood.
And they haven’t stopped yet. Chris Sonne, managing director of consulting firm Self Storage Industries Group, estimates that, in addition to the 250,000 square feet that’s been built over the past year, there’s approximately 750,000 square feet of storage either under construction or in the works for Hawaii. Sonne says the local demand for storage, combined with typically high investor yields of around 19 percent on self-storage projects, have made Hawaii ripe for growth.
For consumers, the result has been more locations, discounted pricing and choices galore. “Not only is there a lot of product on the market, but there are different kinds of products,” says Thomas Krandal, a California-based consultant who entered the Hawaii market eight years ago and is currently assisting with the development of two new self-storage locations here. “Facilities range from places with four walls offering a dry place for people to store their goods, to facilities that have been built specifically for self storage, from the ground up. Those usually tend to offer more amenities.”
Two companies in particular — one local, one national — have been battling it out in the hopes of dominating the latter category. The large Mainland chain Public Storage built the state’s first purpose-built facility a decade ago, exposing Hawaii to a world beyond old, repurposed warehouses. Since then, however, Hawaii Self Storage has been upping the ante by adding more and more features to its growing number of facilities.
Add that, however, to the bevy of projects coming online by competing developers, however, and suddenly Hawaii’s not so underserved anymore. “A quarter of a million square feet is a lot of new construction to absorb. And on top of that, Hawaii’s rates for storage are pretty high, at $2.72 per square foot. The national average is about $.70 per square foot. So the saturation rate in Hawaii is going to be lower than the national average,” says Sonne.
Sonne estimates Hawaii’s saturation point to be about 4.7 square feet per person, roughly double what we now have. At that point, Krandel says, we may begin to see some fallout from the scurry two years ago: “When people saw that the gravy train was in Hawaii, everybody was in such a rush to get onboard. But the problem was it was mainly all these Mainland investors who didn’t realize how much storage is coming at the same time, and who don’t understand the people or the market.”
As an example, Sonne says he spent six months researching the development of a new Dillingham facility he plans to build with a local developer later this year, while some of his competitors have thrown buildings up within weeks of finding a suitable spot.
“We’re probably not going to be overbuilt, but I wouldn’t be surprised if we’re pretty close to market saturation when all these areas are built out. At that point, we have a feeling that some of these Mainland guys who are coming to Hawaii and building these facilities didn’t do their homework, and there might be a facility or two available,” adds Wood, with a big ol’ grin on his face.