Rethinking Industrial Space

Self-Storage Conversion in a High-Interest Market

Industrial real estate investors are facing a unique challenge. With rising interest rates, traditional long-term leases might not be as attractive to tenants. However, there’s an underutilized option that can provide a steady income stream: converting industrial buildings into indoor self-storage facilities.

Why Self-Storage?

The self-storage industry boasts consistent demand. People need storage for various reasons, from downsizing to running online businesses. This demand remains stable even during economic downturns. Companies like Flex Building Systems offer prefabricated building components that can be used to create secure, efficient storage units within existing warehouses.

Potential Revenue Breakdown

Let’s consider a typical scenario. Imagine a 100,000 square foot warehouse. Traditionally, this might be leased for a single large tenant. Converting it into self-storage could yield significantly more income.

• Standard Unit Size: Assume an average unit size of 10’x10′ (100 square feet).
• Number of Units: The warehouse could potentially hold 1,000 such units (100,000 sq ft / 100 sq ft/unit).
• Rental Rates: Depending on location, typical rates for a 10’x10′ unit can range from $75 to $125 per month.

Using a conservative estimate of $100 per month, this converted warehouse could generate a potential gross annual income of $1,200,000 (1000 units * $100/month * 12 months). This income stream offers greater diversification compared to relying on a single large tenant.

Challenges and Considerations

While the potential benefits are clear, there are challenges involved in this transition.

• Zoning Regulations: Confirm local zoning allows self-storage facilities.
• Building Modifications: Costs for installing security systems, access controls, and unit dividers need to be factored in.
• Market Saturation: Research existing self-storage options in the area to avoid oversaturation.

The Broker Advantage

An experienced commercial real estate broker can be invaluable in navigating these challenges. They can:

• Market Analysis: Assess the feasibility of conversion based on local demand and competition.
• Zoning Expertise: Guide you through the zoning approval process.
• Contractor Recommendations: Find qualified contractors for cost-effective modifications.
• Maximizing Revenue: Advise on optimal unit sizes and pricing strategies.

Additional Considerations

• Security: Modern security systems and controlled access points are crucial.
• Management: Factor in the cost of ongoing property management or hiring a self-storage management company.
• Long-Term Strategy: Consider the future use of the property. Can it be easily converted back to traditional warehouse space if needed?

The Bottom Line

In today’s high-interest financial climate, industrial real estate investors need to explore creative options. Converting underutilized warehouses into self-storage offers a steady income stream with a lower vacancy risk. However, careful planning and the expertise of a qualified broker are essential for a successful conversion. By carefully considering the potential revenue, the challenges involved, and the benefits of experienced brokerage, industrial investors can unlock the hidden value of their existing properties.