Contractor Storage: An Introduction for Investors
When you think of “self-storage facility,” what comes to mind? Typically, people associate facilities with serving residential customers. The units are often on the smaller side, around 10’x10’, and used for things like downsizing, temporary storage between semesters, cross-country moves, or sorting through an inherited estate.
However, residential customers aren’t the only target audience for self-storage facilities. In fact, we’ve found that alternative uses are becoming more popular, and facilities are adjusting their offerings as a result.
In today’s economic climate, home sales are down. Considering “moving” is the biggest use case for renting storage units, facilities must cater to a more diverse user base to offset the lessening demand from residential customers.
One major area of growth we’re seeing across the industry is offering storage for contractors and construction owners. Let’s take a look at where the construction industry stands today and how facilities are addressing the rising challenges of storing construction equipment and materials.
The Current State of the Construction Industry
Like most other sectors, inflation and labor shortages continue to impact the state of construction in the country. As the industry continues recovering from the economic impacts of Covid, they’ve been faced this year with high material prices, increased labor costs, and a shortage of skilled workers. In addition, high interest rates (which became elevated in an effort to fight high inflation) combined with stricter lending standards have impacted growth as well.
However, demand for new construction remains high, and experts anticipate that 2024 will be a year of growth and recovery in the industry. In fact, Deloitte expects the construction industry in particular to benefit from recently passed legislation including:[1]
The Infrastructure Investment and Jobs Act (IIJA)
Inflation Reduction Act (IRA)
Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act
Confidence in the construction industry is high for 2024, and the Associated Builders and Contractors expect an overall increase in profit margins by early next year.[1] In fact, the industry is expected to grow by 5.1% over the next five years.[2]
Construction Storage Challenges
In this period of recovery and growth, new contractors and construction businesses are emerging at a fast rate. The problem is, new operators need to establish a home base for their business — a business that requires a substantial amount of heavy (and expensive) machinery, tools, and supplies.
Traditionally, contractors and construction owners have had to either:
Store equipment on job sites: Job sites often lack security, especially if they’re on residential property. Depending on the client, it may be inconvenient for the customer or violate township/city code to keep heavy machinery on the property. Not to mention, if your crew is working on more than one job site, coordination can become much more difficult when equipment is scattered across multiple locations.
Store equipment at home: This may work for someone with a lot of land and outbuildings, but most people don’t have the space (or desire) to keep equipment at home. If you live in a neighborhood with a homeowners association (HOA), they likely won’t allow you to store equipment on your property anyway.
Build a warehouse: If you have enough upfront capital, you could buy a piece of land and build a warehouse to store your equipment. For most new (and even established) business owners, however, this can be an immense challenge. Not only is it expensive to build or retrofit a space, but it requires ongoing expenses like security, electricity, property taxes, etc. Another risk owners run into is outgrowing the space within a few years of building it — meaning they have no choice but to start all over again in a new space.
How Self-Storage Can Help
The good news is, the self-storage industry is evolving to address these challenges, which creates new opportunities for investors. Our team at Belrose, for example, has been hard at work identifying new facility acquisitions, including spaces designed specifically for contractors.
What makes them different than residential facilities? Contractor storage spaces are often larger, with high ceilings and wide openings to accommodate equipment and trucks. Sometimes, they’ll even offer flexible spaces that can be used for both offices and storage.
Expanding Investment Opportunities in the Self-Storage Space
Our knowledgeable real estate experts constantly keep their fingers on the pulse of self-storage trends and movements. Why? Because we want to pursue opportunities that we believe will help our community of investors achieve their investment goals of security, income, and growth.
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