New Orleanians will soon have a lot more options for where to store that old dresser and the rest of the stuff in the garage, as several local developers, spurred by the prospect of high profits, are rushing to expand into the self-storage market.
At least 16 self-storage projects are in some phase of development in the New Orleans area, according to real estate investors and industry analysts. The boom will add well over 1 million square feet of new storage space — enough square footage to cover all of Canal Street from the Mississippi River to Interstate 10.
The recent boom in New Orleans is part of a national trend, driven by shifts in the real estate market, low interest rates, and the search by investors for a high-yielding investment that will hold up even in recessions.
The $32 billion dollar self-storage industry has grown by roughly 4.5 percent annually in recent years, significantly faster than the broader economy. In the last year, investors have added $4 billion in new storage spaces.
“The industry is going through a huge development boom,” said Anne Hawkins, an executive vice president with Tennessee-based research firm STR, which tracks the storage industry. She said New Orleans is sharing in the growth.
Veteran storage industry executive Jim Ponti said the local activity is nothing short of “a growth explosion.”
The former local operations manager for Safeguard Self Storage, Ponti is a founding member of the Louisiana Self Storage Association. He now manages central region sales for Janus International Group, a Georgia-based firm that supplies equipment for self-storage facilities.
He said the local industry’s growth spurt follows a stagnant period after the last economic recession, when even national chains such as Safeguard and Public Storage had difficulty getting financing. “But now we have a lot of new equity people coming into the market, just looking to build a portfolio,” he said.
For anyone who has had to manage a temporary relocation, or faced the logistical challenge of timing a move out of one home and into another, the value of rented storage space is clear. Being able to safely store one’s furniture and other belongings in a convenient location for some period of time can ease the pain of a big move.
Even for people who are not relocating, the use of rented self-storage units has become almost routine. Many business owners also see the value of storing little-used records and other items off-site, in a tin-roofed building, rather than stacking them up in pricey office space.
Data from the national Self Storage Association and other sources show that some 50,000 facilities contain more than 2 billion square feet of storage space nationwide. And New Orleans already has around 8.6 million square feet of storage space, according to STR.
Among those investing in local projects are some well-known names in real estate, including retail developer Gordon Kolb, who has begun construction on a large storage facility on Tchoupitoulas Street and has another one in development in Elmwood.
Paul Dorsey, whose local commercial real estate company has developed properties for national retailers such as Dollar General, is completing a multi-story self-storage facility on Papworth Street, just off Veterans Memorial Boulevard, in Metairie.
R. Craig Smith, whose Baton Rouge-based Brookwood Properties LLC owns more than a dozen storage facilities in the capital city, has three self-storage projects under way along Airline Drive in Jefferson Parish.
And Dallas-based Provident Realty Advisors is building a five-level storage facility that stretches between Causeway Boulevard and Ridgelake Drive, across from Lakeside Shopping Center in Metairie.
Still more storage units may be developed soon in New Orleans’ Warehouse District, Mid-City and near the Esplanade Mall in Kenner.
Part of what is driving growth is pent-up demand. For more than a decade, very little self-storage expansion had occurred in the area.
In New Orleans, both rental rates and occupancy — now at about 92 percent — are running slightly above national averages, according to STR.
That has helped push up rental rates on existing spaces. Real estate consultant Kevin Hilbert said investors have begun waking up to the fact that rents on some local storage units “are on a par with” suburban luxury apartments.
“Some storage companies can get $300 a month for a 10-foot by 10-foot unit,” he said. “You can get a pretty nice apartment for $3 a square foot.”
And self-storage, which generally consists of a warehouse divided into “rooms” of varying size, requires only a fraction of the maintenance and other costs that apartment buildings incur.
Real estate investors typically borrow most of the money they use to invest in properties, so low interest rates are allowing them to borrow cheaply.
And rates of return are averaging about 5.6 percent and ranging as high as 8.5 percent, according to a recent investor survey.
“Capitalization rates are on a par with apartment complexes and some shopping centers, and foreclosure rates are very low,” Ponti said.
While expanding the local self-storage market by 12 percent or more in a short time will address demand, Ponti wonders if the growth is sustainable. He said most other areas where self-storage is exploding have significant population growth, but New Orleans isn’t growing rapidly.
“A lot of people feel there’s room for competition in the local market, but I am a little concerned,” he said.
Still, there are reasons to be optimistic. For one, the self-storage market is somewhat immune to recessions. Ponti said clients tend to stick around no matter what the state of the economy is.
“Everybody goes in with the expectation of staying there two or three months, but statistics show that on average you’ll be there much longer,” Ponti said, noting that the average client, nationally, holds on to a rented storage space for about 21 months.
As competition grows, storage operators are also looking for ways to stand out. Some, for instance, now cater to small businesses by accepting package deliveries and placing the items in the customer’s storage unit. Others offer shipping services. And many owners are dressing up their buildings’ exteriors with colorful signage and graphics.
At one of the most sophisticated local facilities, at South Clearview Parkway and Mounes Street, developer Louis Lauricella not only created a splashy front office but added some unusual features. Elmwood Self Storage and Wine Cellar offers luxury spaces designed to keep fine wines in top form.
The company’s 700-square-foot wine cellar features a handcrafted bronze door, a stained-glass ceiling, custom-made floor tiles and mahogany lockers in varying sizes to accommodate up to 64 cases of wine. A back-up generator ensures continued climate control in the event of a power failure.
And if tenants are storing wine for investment, the company will provide a frequently updated report that shows details of their wine’s storage conditions from the time of its arrival at the storage center.
Still, specialized areas for wine and other goods remain the exception.
“A lot of the space is just used for junk,” Ponti said.