Self-storage goes urban: ‘It’s a much sexier building’

A new city zoning rule allows self-storage facilities in urban mixed-use district, and developers are taking advantage of the change. Josh Davis, 31, who is developing The Belmont Mills Project, gave a tour of the site at 10th St. and Seigle Ave. on Thursday, Feb. 11, 2016. Two vacant Seigle Avenue houses will be demolished when construction begins.
A new city zoning rule allows self-storage facilities in urban mixed-use district, and developers are taking advantage of the change. Josh Davis, 31, who is developing The Belmont Mills Project, gave a tour of the site at 10th St. and Seigle Ave. on Thursday, Feb. 11, 2016. Two vacant Seigle Avenue houses will be demolished when construction begins.

Millennials are living in small apartments for longer and empty-nest Baby Boomers are downsizing, but apparently neither group has stopped accumulating stuff – fueling a boom in the local self-storage business.

And a rule change approved in November by Charlotte City Council allows new self-storage facilities to be built in more urban, residential areas, instead of the industrial and warehouse districts where they’ve traditionally located. There are two self-storage facilities planned just east of uptown, on 10th Street and Central Avenue, another planned on West Morehead Street in uptown and a fourth near new houses and upscale stores at Prosperity Church Road and Interstate 485.

But these aren’t the single-story, industrial, block buildings with roll-up metal doors you’re used to seeing. The new breed of self-storage buildings are four, five, even eight stories tall, with restaurants and offices on the ground floor. They’re designed to look like office or apartment buildings, and operators hope they can change the perception of self-storage.

“We’re trying to put together mixed-use buildings that do not look like self-storage,” said Joshua Davis, Charlotte-based vice president of Pamlico Investments. He’s seeking City Council approval to build a five-story self-storage business at 10th Street and Seigle Avenue, combined with ground-floor shops, offices and restaurants.

The booming apartment market is one of the trend’s major drivers. Developers are building more than 1,000 new apartments along the Central Avenue corridor in Plaza Midwood, and many of those new residents will need extra square footage to stash a few things before or after a move.

“We’re trying to centrally locate ourselves into multifamily and business corridors,” said Davis. The big numbers of new apartments in close-in, urban neighborhoods near uptown make those sites more attractive for self-storage operators. “It really acts as an extra closet for a lot of these people.”

Such sites come with higher land costs though – and that means self-storage companies have to find a way to get more square footage they can rent out than traditional single-story designs allow.

“You couldn’t build enough single-story storage on an urban plot of land to work. You have to get enough square footage to overcome the cost of the dirt,” said Chris Gilbert. He’s vice president of engineering at BETCO, a Statesville-based company that builds self-storage facilities. Last year, the company opened a new, satellite office in Charlotte devoted to planning multistory self-storage buildings.

Gilbert said the industry still has to overcome a perception problem as self-storage moves into more urban environments.

“People kind of get a frown on their face,” he said. “They’re thinking of that old, industrial park-looking project where you see a lot of low, squatty buildings.”

“It’s a much sexier building than it used to be,” he said of the new type of projects.

Dave Benson is president of Morningstar Properties, a Matthews-based self-storage company that opened a five-story facility on South Tryon Street near Clanton Road last year. He said the new multistory buildings allow apartment dwellers and others who need nearby access to self-storage to get to their units quickly, since they don’t have to be built in fringe industrial areas.

“This new style of construction allows us to get closer to the user,” said Benson. He said some customers come multiple times a week, and use the storage units for things they just can’t fit in small apartments but still need regular access to, such as a mountain bike.

Even though the city’s changed zoning rules allow new self-storage in more places, Benson said he doesn’t favor the mixed-use developments.

“We’d rather have a strictly storage development,” said Benson, who said storage facilities are quiet and can be integrated well into neighborhoods without worries about noise, parking or traffic. Putting a restaurant or bar in there could complicate that.

He also worries that the current interest in self-storage could lead to overbuilding in Charlotte. That, in turn, could lead to lower rents and a harder time leasing out units. Benson said his company has counted 32 projects underway or under consideration in Charlotte, potentially adding some 2.5 million square feet of storage space.

“I think we’re in for a glut,” he said. “We’re absolutely holding our breath to see how many of these come to fruition, and what the market does.”

Rising rents raise interest

One reason self-storage has become a more attractive industry for investors: Increasing demand means operators can charge more. Financial results at large, publicly traded companies paint a rosy picture.

Public Storage, which operates almost 2,300 self-storage facilities in the U.S., reported that it raised its average rent-per-square foot by 6 percent from the same quarter a year ago. Its storage facilities were almost fully occupied, at 95.3 percent full. Extra Space reported that its North Carolina facilities were 92.4 percent leased at the end of September, up from 90.2 percent at the same time last year. The company increased its rental rates by 7 percent.

Those factors are attracting more investors, with money to fuel new development.

“People like the fundamentals, and they’re coming in whole hog,” said Benson. In 2014, his company raised $77.5 million worth of funding for acquiring and developing storage facilities, and Benson said they plan to raise more when they’ve used that money.

Locally, more parts of Charlotte are now open to new self-storage facilities. Before November, the city’s zoning code allowed self-storage on sites designated for warehousing and industrial uses. City Council voted to allow new self-storage facilities to be built in mixed-use development districts, which are typically dense and urban. An affiliate of Florida-based Budget Self Storage proposed the change.

Now, Budget Self Storage is planning to build a five-story facility at 600 West Morehead Street, directly across the train tracks from Bank of America Stadium, with offices on the ground floor. The site is zoned for mixed-use development.

Jonathan Dorman, president of Budget-affiliated company StorCon Development, said the company pushed for the rule change because there wasn’t an option under old zoning laws that allowed building self-storage in most of the high-growth areas where apartments have sprouted.

“People want to store where they live,” said Dorman. Despite the opportunities multistory self-storage buildings offer, Dorman said they can be harder and more expensive to develop, especially since multistory construction with heating and air conditioning is much more expensive than single-story concrete boxes with roll-up metal doors.

“It’s not without it’s challenges,” he said. “The cost to the project goes up significantly.”

The new rules require all new urban, mixed-use self-storage facilities to be fully enclosed – no roll-up metal doors allowed. The ground floor must be at least 50 percent “active” space, with uses such as offices, shops, restaurants or even breweries built in to make the buildings more engaging and different from the suburban self-storage you’re probably picturing.

David Walters, an urban planner and professor emeritus at UNC Charlotte, said he thinks new, urban self-storage projects will help cut down on long drives to the suburbs for people who need to store items. He worries, however, that developers will slap unappealing buildings above token retail on the ground floor, however, rather than well-designed buildings.

“It’s in the details,” said Walters. “That’s my worry, that it will be a sort of not-very-well-designed box above the one level of retail.”

Still, he’s encouraged by the trend towards mixing uses and cutting down drive times.

“Overall, I think it’s a positive thing. At the very least it introduces a needed facility within a short distance of where people live,” Walters said. “It gets the storage within a better building type. Anything that has retail and offices at the sidewalk instead of blank walls is good.”

Ely Portillo: 704-358-5041, @ESPortillo