Empty Space

Behind the high-end, Mediterranean-style façade of some of the region’s self-storage facilities is an industry that experts say is suffering from an oversupply.

A surge in facilities, built to meet demand in the aftermath of the 2004-2005 hurricanes and the housing bubble, has created about 8 million square feet of self-storage space and about 80,000 units in about 160 facilities in Charlotte, Collier and Lee counties, according to data from commercial real estate brokerage firm Marcus & Millichap.

They not only look high end, but boast amenities such as climate- and humidity-controlled units, wine storage, gate entry, alarms on individual units and dozens of security cameras monitoring the premises 24/7—all things that attracted people willing to pay higher rates a few years ago.

Now, says Rick Yonis, president of the Florida Self Storage Association, “[Florida’s] west coast is overbuilt. There is too much available self storage.”

“There were just way too many storage [facilities] built during the bubble from ’05 through ’08,” says Michael Mele, vice president of investments and senior director of the national self-storage group for Marcus & Millichap’s Tampa office. “We’re starting to see more and more properties struggle.”

The average occupancy rate in Southwest Florida has declined to about 63 percent, he says. Some facilities have cut rates by as much as 15 to 25 percent to attract customers.

Owners—many of whom are REITS (real estate investment trusts)—based their expected performance on construction of new homes, but when the housing bubble burst, the demand went down dramatically, Mele says.

“The real estate component is what pushes the industry over the top because we need real estate transactions to keep those people moving, to keep those people needing self-storage,” says Yonis, managing partner of Sentry Self Storage, which has facilities in Florida, Georgia, Illinois, Indiana, Nevada and Texas.

As vacancies rose and financing ran out, construction of storage facilities dried up.

Home foreclosures have become the “saving grace” of the self-storage industry, Mele says. People needing to store their possessions when they lose their home has kept average occupancy rates from dropping to as low as 40 or 50 percent. But the new business doesn’t make up for lost clients, particularly as the recession impacted buying habits of residents in affluent areas.

“People who were flush with money were buying lots of new stuff and were using these units as extra garages. When that dried up, they said, ‘This is something we don’t need,’” he says.

Mele expects to see several area self-storage facilities face foreclosure this year, and companies such as Sentry are keeping alert for possible acquisitions of struggling facilities.

Sentry’s first facility in Southwest Florida, Champion Self Storage in Cape Coral, opened in October 2007. The 611-unit facility, with 67,810 rentable square feet, finished first quarter 2010 at 75 percent occupancy.

Before the economic downturn, a new facility would take 24 to 30 months to reach up to 80 percent occupancy, but Yonis says it’s now taking at least four years. Hindering that goal is the drop in customers such as landscapers, electricians, plumbers, tile companies and other subcontractors who have either closed or moved out of the area.
Security has become a differentiating factor among self-storage facilities. Those built in the past five years often have from 16 to 32 security cameras, Yonis says.

“When you do focus groups with customers on what their top five items were from a preference standpoint, security kept moving up the ladder,” he says. “It’s interesting, because until the economic downturn of 18 months ago, price wasn’t in the top five. But now it’s slowly creeping in that they’re price sensitive.”

Location also is key, particularly for seasonal residents and businesses that may need to access a file quickly. Facilities near areas such as Fort Myers Beach or Sanibel Island are sought by seasonal residents storing bikes, gear and summer clothes, says Randal L. Mercer, partner with CB Richard Ellis in Fort Myers. Facilities with yard storage for motor homes and boats have an edge in the market today, he adds.

Like the office buildings they try to emulate, storage facilities also have different classes, but Mele says Southwest Florida has few class-A properties.

“The ones with the best locations on the best road at the best visibility have fared a lot better than the other ones,” he says. “Even though these properties may consider themselves A buildings, if you’re behind a shopping center or in an industrial park, you’re not an A facility.”

Olde Naples Self Storage’s two facilities in Collier County have residential touches inside, too, such as marble countertops and tray ceilings in the entryway to the business. Partner Henry Halle III says the facilities have higher occupancy rates than the 63 percent average for the region, although he declined to provide specific figures. Olde Naples Self Storage is seeing customers respond to discounts, such as 25 percent off the first three months rent on certain units.

“We’re just having to market more, work harder and stay involved in the community to a greater degree,” he says.