As a self-storage owner or investor, the decision to build either an indoor self-storage facility or an outdoor container storage facility is an important decision. Each option comes with its unique advantages and challenges, making it essential to carefully evaluate various factors before making a well-informed choice.
Indoor Self Storage Facility:
Pros
Premium Pricing:
Indoor self-storage facilities often command higher rental rates due to the added benefits they offer, such as climate-controlled units, enhanced security or better unit ventilation. As a result, you can potentially achieve higher revenue per square foot compared to outdoor container storage. My own indoor facility achieves around £21 per square foot versus a nearby container site at £10.
Long-Term Value:
Investing in an indoor facility demonstrates a commitment to providing a higher level of service and security to customers. This can lead to greater brand loyalty, attracting long-term tenants who value the premium features and are willing to pay a premium price. Indoor self storage facilities also typically sell at much higher multiples if and when you go to sell. Plus, there is a well defined market for the buying or selling of indoor sites.
Upselling Opportunities:
The (usually) higher quality environment of indoor storage enables you to target a broader range of customers, including those seeking to store sensitive or valuable items. Additionally, you can offer ancillary services, such as packing supplies or document shredding, to increase your revenue streams.
Increased Security Measures:
Indoor facilities allow for better control over security, with options for advanced surveillance systems, access control, and onsite personnel. This heightened security not only protects customers' belongings but also instills confidence in potential tenants.
Cons
High Initial Investment:
Building an indoor self-storage facility demands a more substantial initial investment due to the need for climate control systems, partitioning, and advanced security infrastructure. This could impact the project's overall return on investment in the short term. When I started StoreStuff, I took out a 20 year lease on a relatively small warehouse to keep up-front costs down. I also phased the fit out (49 units on Day 1, another 40 after 9 months and the remainder 6 months later), keeping the initial costs down.
Operating Costs:
Business rates, rent (if applicable), as well as maintenance, cleaning and security costs can lead to higher ongoing operating costs. As an owner, you must carefully balance these expenses against the premium rental rates charged to customers.
Outdoor Container Storage:
Pros
Lower Construction Costs:
Developing an outdoor container storage facility typically requires fewer capital expenditures than an indoor facility. This cost-effectiveness can lead to quicker returns on investment and lower financial risks.
Versatility and Scalability:
Outdoor storage facilities offer greater flexibility in expanding storage capacity by adding more containers as demand increases. This scalability allows you to respond to market demands efficiently.
Reduced Maintenance:
Outdoor storage containers are generally low-maintenance, as they are built to withstand various weather conditions. This can lead to lower ongoing operational expenses.
Cons
Revenue Potential:
Outdoor container storage tends to command lower rental rates compared to indoor self-storage. The lack of climate control and limited amenities may deter some potential customers who prefer premium features. Some containers can have issues with damp and condensation and though steps can be taken to prevent this, customer’s may be less willing to pay higher prices due to concerns.
Security Concerns:
While basic security measures can be implemented, outdoor facilities may be perceived as less secure by potential tenants. Investing in comprehensive security solutions is essential to instil confidence in customers.
Weather-Related Risks:
Outdoor storage exposes customers' belongings to the elements more than indoor, which may lead to weather-related damage or deterioration of certain items over time.
Long-Term Value:
Although cash flow can be very strong from an outdoor container facility (which, for most investors is all that matters), if you are looking to sell it may well be more difficult to sell than an indoor facility. There have been less transactions in the UK for outdoor facilities and I suspect the multiples would likely be much lower.
Conclusion
There is no right or wrong choice here. Whatever you decide might well be based on how much you have to invest, whether or not you already own land or a warehouse, or what you think might work better in your local market. Either way, we have seen many successful businesses being built with both approaches.
