It’s Time to Pump the Brakes on Self Storage Development in the Kansas City Metro
Has anyone else noticed that self storage facilities are popping up everywhere in the Kansas City Metro? Why? For starters, people need the extra space. Anyone who has moved, renovated or sold a house, or gone through the unfortunate experience of divorce or death of a loved one has probably rented a storage unit. Then there are thousands of commercial customers who utilize self storage as part of their day to day business operation.
According to the Self Storage Association, 10.6% of households currently rent a storage facility. This is up from 9.4% in 2017. That may not seem like a high increase, but when you consider there are 122.8 million households in the United States, that equals almost 1.350 million more households renting a storage unit today that were not doing so a few years ago.
During the pandemic, the self storage industry has been one of the few real estate sectors that has thrived. For the most part storage facilities have maintained occupancy while managing to keep their past due receivables at basically a normal level. When storage managers asked new customers why they were moving stuff into a storage unit during a pandemic, the customer’s response (if it wasn’t one of the already mentioned reasons) was that they were clearing out part a
basement or a spare bedroom in order to create space for a home office. Today, many of these people are still working from home and still renting their storage unit.
The storage industry was perfectly positioned to handle the pandemic before it happened. Many operators had already invested in remote management software and were already using kiosks and call centers at their properties. They were already offering its customers electronic leases, credit card autopay and contactless rentals before that was even a thing. This ground work allowed storage facilities to remain open for business when others industries were told to close or scale back in this new environment.
What does this mean? It means a lot of new capital being is being invested into the storage space and developers are eager to expand into new markets to make opportunities happen. The storage industry is booming and has been for years. Just how big of a boom? Here are some relevant statistics for context.
From 2010 to 2017 the Kansas City Metro had 9 storage facilities delivered totaling 821,000 sq. ft of space. That was basically 1 large property being delivered per year. Area occupancies were pushing all time highs and the new facilities absorbed fairly easily without impacting existing properties in the area. These developers were ahead of the hockey puck. Good for them. Timing is everything.
Then from 2018 through 2021 there were 32 facilities delivered totaling 2.1 million square feet of space. Insanity. It was during this time you started noticing storage facilities popping up everywhere – because they have been. Developers and operators from ten different States have entered the Kansas City market during this time and it is not over yet. As of this writing there are four facilities actively under construction totaling another 400,000 square feet and there are another 21 prospective facilities totaling 1.35 million square feet currently going through planning and entitlement. Will all of them make it through to a fully realized project? Thankfully, no. I am aware of several projects that reached a point where the developer actually acquired and entitled the land but ultimately decided not to move forward building new multimillion dollar facility; likely because they are seeing this same data I am presenting here.
But the reality is these sites will be sold to different developers (especially if the sites are good ones) and the other prospective sites that stall out will be replaced with new ones. This is especially true as retailers continue to shed their large and underperforming brick and mortar locations. We will be seeing self storage operators step up as one of the alternative uses for these vacant boxes. In Kansas City, self storage operators have filled up several vacant office buildings, former Wal-Mart, K-Mart, HyVee buildings, a former indoor Go-Kart business and even a former 10 story hotel up by the airport. All of this adds more inventory to an already bloated supply. This glut of supply will lead to prolonged absorption periods and possibly even produce a few distressed assets becoming available for sale. It will also mean cheaper storage units for the consumer as these new facilities all offer concessions to lure customers to their new properties.
In the meantime, if you see a site or building that you think could be a perfect location for a storage facility, call the city and ask about their storage development pipeline. You might be surprised to learn there are half a dozen similar projects working their way through planning and zoning – including several within a two mile radius of your ‘perfect’ site. Its going to be very competitive and there will be winners and losers when this development boom reaches its conclusion.