Generations of Self-Storage Facilities
The self-storage sector has three unique generations of facilities based on a property’s age, and knowing an asset’s generation is useful in an investment decision.
The self-storage sector is a popular consideration for investors across the country. As more investors get into the industry, they are placing greater scrutiny on facilities' performance, asset classes, and markets. That isn't all, though. Another key element to consider when buying a self-storage property is the asset's generation.
Like the sector's asset classes, there are different generations of self-storage facilities — three to be exact. The change in each generation marks not only a shift in the general construction and layout of a self-storage property but also a shift toward customer attraction, retention, and satisfaction. Below, we show some key attributes that set each self-storage generation apart.
First Generation (1965 to 1988)
The original self-storage layout is the one most people tend to associate self-storage facilities with. This generation includes basic metal buildings with rows of garage-type storage bays. These facilities are typically found in industrial parks or on parcels of land that otherwise would have no use. First-generation facilities — barring those that have undergone modernization — generally do not offer climate control or modernized security systems.
Second Generation (1989 to 1993)
The second generation of self-storage facilities increased focus on meeting specific customer needs. While the garage bay-style structure still dominated, many improvements helped entice new tenants. Second-generation facilities began rolling out better security and introduced climate-controlled units. Further attributes of this generation include more tactical locations near urban areas. Paved driveways and some computerization of customer service aspects also became more common.
Third Generation (1993 to today)
The third self-storage generation is the one we are still in at present. Major investments into diverse, state-of-the-art facilities characterize this generation. Properties tend to be located with greater visibility along major transportation corridors. They're also often close to recreational areas, colleges, commercial areas, and dense urban areas. These facilities benefit from excellent marketing and have seen improvements in signage, temperature and humidity controls, and on-site security. Luxury properties also came into existence. Some newer assets even resemble office buildings, with amenities from free Wi-Fi to business services. These properties also cater to storing more than old personal effects. Storage options for wine, firearms, documents, and even recreation vehicles are now commonplace.
Related Questions
What are the differences between first-generation, second-generation, and third-generation self-storage facilities?
First-generation self-storage facilities are typically older, single-story buildings with limited amenities. They often have limited security features, such as no cameras or access control systems. Second-generation facilities are newer, multi-story buildings with more amenities, such as climate-controlled units, elevators, and better security features. Third-generation facilities are the newest and most modern, with features such as automated access control systems, online rental capabilities, and even retail stores.
According to Self Storage Investing, first-generation facilities are typically the least expensive to purchase, but may require more capital to upgrade and maintain. Second-generation facilities are more expensive to purchase, but may require less capital to upgrade and maintain. Third-generation facilities are the most expensive to purchase, but may require the least capital to upgrade and maintain.
What are the advantages and disadvantages of investing in a first-generation self-storage facility?
Investing in a first-generation self-storage facility can be a great way to get into the self-storage business. The advantages of investing in a first-generation facility include the potential for higher returns, the ability to customize the facility to meet your needs, and the potential for long-term growth. However, there are also some potential drawbacks to consider. First, the facility may require more capital upfront to get it up and running. Additionally, the facility may not have the same level of occupancy or rental rates as more established facilities, which could lead to lower returns. Finally, the facility may require more maintenance and upkeep than an established facility, which could lead to higher operating costs.
What are the benefits of investing in a second-generation self-storage facility?
Investing in a second-generation self-storage facility can be a great way to get into the self-storage market without having to build a new facility from scratch. Second-generation facilities are typically already established and have a proven track record of success, so investors can be confident that their investment will be profitable. Additionally, second-generation facilities often come with existing tenants, so investors don't have to worry about finding new tenants or filling up the facility. Furthermore, second-generation facilities often come with existing financing, so investors don't have to worry about securing a loan. Finally, second-generation facilities often come with existing management, so investors don't have to worry about hiring and training staff.
For more information on financing for second-generation self-storage facilities, please visit our Self-Storage Financing page. Here, you can find information on loan products, terms, and more.
What are the advantages of investing in a third-generation self-storage facility?
Investing in a third-generation self-storage facility has several advantages. First, these facilities are typically more established and have a proven track record of success. This means that investors can be more confident in their investment and have a better understanding of the potential returns. Additionally, third-generation self-storage facilities often have more amenities than newer facilities, such as climate-controlled units, on-site security, and other features that can attract more customers and increase revenues. Finally, these facilities often have lower operational costs than newer facilities, making them more profitable investments.
For more information on self-storage investing, check out A Beginner’s Guide to Self-Storage Investing and 4 Ways Self Storage Is Recession Resistant.
What are the key considerations when evaluating a self-storage facility for investment?
When evaluating a self-storage facility for investment, there are several key considerations to keep in mind. First, it's important to look at the surrounding market conditions. Is the population and job growth steady? Are there more homeowners or renters in the area? Is the location close to university campuses, residential areas, or businesses? It’s best to look at these metrics within a 3- to 5-mile radius of a facility.
Second, it's important to consider the level of competition within the chosen market radius. If there are already a lot of self-storage facilities nearby, it may be harder to attract new tenants than if there were very few options available. It’s also important to consider whether there are any facilities under construction or in the planning stages, as those can affect your property in the future.
Finally, it can be helpful to look at the saturation level of the market. The saturation level of an area is measured by the gross square feet of storage space available per person. Currently, the average self-storage inventory per capita across the country is around 7 to 8 net square feet. A market with a per-capita inventory above the U.S. average is usually considered oversupplied, whereas anything below is undersupplied.
What are the most important factors to consider when investing in a self-storage facility?
When investing in a self-storage facility, the most important factors to consider are the surrounding market conditions, the level of competition within the market radius, and the saturation level of the market.
It's important to look at the population and job growth, the number of homeowners or renters in the area, and the location's proximity to university campuses, residential areas, or businesses. It's best to look at these metrics within a 3- to 5-mile radius of a facility.
It's also important to consider the level of competition within the chosen market radius, as well as any facilities under construction or in the planning stages. The saturation level of an area is measured by the gross square feet of storage space available per person. Currently, the average self-storage inventory per capita across the country is around 7 to 8 net square feet. A market with a per-capita inventory above the U.S. average is usually considered oversupplied, whereas anything below is undersupplied.