When asked about my profession by
friends and people I randomly meet, I respond, “I work in the self-storage
industry”. The next question is typically, “You mean like the little rows of
garages where people keep their old furniture?” My response: “Not really. It’s
actually much more sophisticated than that.”
Twenty-five years ago, the question
above painted a very accurate picture. The “rows of garages” are what the
industry now refers to as Generation 1 (or first-generation) facilities; the single-story
buildings with relatively uniform unit sizes, roll-up doors, and no heating or
air conditioning. These facilities were built throughout the early years of
self-storage and are still built by some developers today. While easy and
relatively inexpensive to build, Generation 1 facilities require large pieces
of land that are often in suburban or even rural areas; in most cases, they
don’t command premium rental rates or sale prices.
Generation 2 (or second-generation) facilities
were effectively Generation 1 facilities with a few upgrades. They were less
sprawling, with more of a “fortress-like” feel and controlled access through nice
gates that opened with a unique code. These types of facilities increased
customers’ feelings that both they and their stored items were more safe and
secure at these facilities than at Generation 1 facilities. Also introduced in
this generation were interior units. Instead of simply having thin buildings
with multiple garage style units in rows, facilities now had a larger
rectangular building with units on the outside and a corridor down the heart of
the building that allowed people to access smaller, inside units. These
buildings were typically placed in the center of the fortress-like facility.
Generation 3 brought heating and air
conditioning as an option to self-storage users, with some facilities even having
two-story buildings with walk-up or, in cases of the nicest facilities,
elevator access to the second floor. These climate-controlled buildings were typically
positioned at the front of the facility, providing a nicer and more
approachable feel to the facility. Newly-designed front offices served as the
access to the shiny new climate-controlled interior units, where a customer
could rent a unit, buy boxes or locks, and interact with a professional staff. Gone
were the tiny apartment offices of old. Heated and air-conditioned units allowed
managers to charge premium rents for the first time in the history of the
In the mid-2000s, Generation 4
facilities began popping up, transforming the sector from horizontal structures
that spanned several acres to multi-story building that looked nicer, felt
safer, and were able to be built on a minimal amount of land. Major REITs and
larger regional operators realized that these buildings could command rental
rates higher than the dusty old garages on the outskirts of town.
Now, as the current self-storage
development cycle is cresting, new facilities are predominately what Dean
Jernigan, chairman and CEO of Jernigan Capital, is calling “GenV Facilities”—a
completely different product than the self-storage product of the 1970s, 80s,
Latest And Greatest GenV self-storage facilities are typically three- to four-story buildings, sometimes more, and they are almost always 100 percent climate controlled. The exterior looks more like a nice apartment building or office complex. Tilt-up concrete, brick, stucco, or other nicer building materials create curb appeal for the prospective GenV customer. The leasing office feels modern and comfortable, with some having small working areas for customers or waiting areas with a TV. WiFi access is a prevalent amenity. Loading areas are easy to access and in close proximity to elevators, allowing customers to access a top floor unit just as quickly as a ground floor unit. Some GenV facilities even have completely enclosed loading areas so the customer can drive a car all the way in to escape the elements. The hallways are well lighted, have music playing, and feel very safe. Given the attractive design and nicer materials used in construction, municipal zoning authorities and building departments are more likely to allow GenV facilities in closer proximity to customers than was the case with their older brethren.
The evolution from Generation One to
GenV self-storage facilities is in many ways similar to the evolution of hotel
brands like Hilton, Holiday Inn, and Marriott, which ultimately shifted from
the standard 1960s style motel to the more modern and safe (yet still
affordable) multi-story, fully-enclosed hotels that today are standard for the
hotel industry. The traditional motel featured rooms that had to be accessed
from the outside, often lacked an elevator, and had several buildings across
larger pieces of land on the side of the interstate. Then, in the late 1980s,
hotel developers realized that building taller hotels on smaller pieces of land
provided safety and amenities that would attract more types of customers,
including business travelers, and allowed a premium to be charged for rooms. Now,
brands like Hampton Inn, Hilton Garden Inn, Holiday Inn Express, Doubletree,
Marriott, and so many others dominate both interstate exits and urban cores.
The days of the old Motor Lodge Motels are pretty much gone.
Self-storage has followed that exact
path, just a few years behind.
Outdoor access on sprawling lots has been traded for interior access in tall
buildings. Extreme workouts of carrying heavy items up a flight of stairs in the
30-degree cold or 90-degree heat have been replaced with loading carts into elevators,
allowing easy and safe access to a clean, cool (or heated) hallway, and well-lit
unit. The nice new product can charge a premium the older facilities can’t.
While there are still motels and Gen 1 storage facilities throughout the
country, both are relative dinosaurs in terms of new development.
City Living Movement to GenV facilities is due in large degree to the growing need for storage in the urban core of major MSAs. The destruction of the single-family home ownership dream brought about by the Great Recession, along with a desire to shorten commutes, combined with large scale multifamily housing development in recent years, have incentivized people to live in the center of the city. In the past, New York and Chicago were the two dominant cities where the majority of people lived in small apartments or condos throughout the densest parts of the city. Now, places like Denver, Houston, Atlanta, Dallas, Charlotte, and Nashville are experiencing large numbers of residents choosing to live in the heart of the city instead of the suburbs. As urban apartments and condos fill up with people who formerly lived in single-family housing or millennials who want the downtown experience, there is a growing demand for a convenient place to keep excess belongings.
In Atlanta, for example, when a millennial
couple decides to rent a 750-square-foot, one-bedroom apartment in midtown,
they don’t have much room for anything besides essential furniture and a small
amount of space to keep a few days’ supply of clothes. If the husband has a
kayak, an old bed, and some tools, and the wife has a large wardrobe of
seasonal clothes and some family keepsakes, they will need external storage. Unlike
in years past, it is now highly likely that this couple will find a new GenV facility
within a 10-minute drive of their residence.
This is a big selling point for the
future of self-storage customers. Millennials are the fastest growing user
group of self-storage across the country. They are the ones who want to live in
smaller spaces with less internal storage. They want to be in urban markets
where they can live, work, and play without ever having to get in a car. It’s
no surprise that they have no problem paying up for a cool loft apartment but
sacrificing space. Their ability to pay more for a smaller living space also
indicates their ability to pay for excess storage at a nice GenV facility.
However, millennials don’t have the need for as much storage space. The 100- to
300-square-foot unit has been exchanged for the 25- to 50-square-foot unit. The
extension of the garage is now the extension of the closet. Because the
facilities are getting taller, not wider, smaller units are the norm in GenV facilities.
Millennials are keeping their smaller belongings in their “closet”. That closet
just happens to be a few blocks from their apartment as opposed to in the other
GenV storage facilities are being
developed all across the United States. Many have come on line already, with
many more expected in the coming years. There is little doubt that they are the
new normal in the industry, which is a welcome change from the facilities of
the past. No longer is self-storage the corner of the real estate that brings
up an ugly preconceived notion in people. Now, in addition to being the
strongest performing real estate sector in the country, we can be an attractive
“After 30-plus years in the industry,
I believe GenV facilities represent a transformational change in the sector from
the first four generations of facilities,” says Jernigan. “The future of
self-storage is vertical. Sleek buildings in nice urban areas that are clean,
safe, modern, technologically advanced, and versatile so that they fit both
residential and commercial customers have positioned the self-storage sector to
capture a new category of customer who has historically been ignored by the
sector. Given the fantastic new projects in which we have had the privilege to
invest over the past two and a half years, and with what we are seeing being
delivered by others, the future is here.”
John Good is president and COO for Jernigan Capital. Warner Russell is a director of business development for Jernigan Capital.