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Amazon and other ecommerce players aren’t the only ones on the hunt for vacant industrial and retail spaces to possibly convert into storage depots.
Self-storage real estate investment trusts, developers and investors are also scouring Greater Boston – and other major metropolitan areas across the nation – for properties that they can reposition into modern storage facilities for individuals and small businesses to tuck away their personal and business belongings.
Industry executives estimate the industrial-to-storage pipeline will accelerate as investors pour billions into acquisitions, conversions and development nationwide in the coming years.
“Self-storage has become an attractive asset class for institutional investors,” said Brett Hatcher, a senior managing director at Marcus & Millichap. “Self-storage is generally considered recession resistant and the amount of money flooding into self-storage has been incredible.”
Statistics show a strong appetite for space among self-storage players in the Bay State.
Radius Plus, the research and analytical unit of Union Realtime, reports that there’s now 20 million square feet of self-storage space in the Greater Boston area alone within about 425 facilities that Radius Plus regularly tracks.
The total inventory of self-storage space in the region grew by 7 percent in 2019 and 3.3 percent during the height of the pandemic in 2020. There’s about 1.9 million square feet currently in the development pipeline in Greater Boston, including planned and under-construction facilities, according to data.
Though Radius Plus doesn’t break down the incoming supply of self-storage space between conversions and ground-up construction, national figures indicate about 20 percent of added self-storage space comes via conversions of older buildings such as warehouses, light industrial complexes and, more recently, vacant big-box retail stores. There are even a few instances of outdated office buildings being converted into self-storage, as in Worcester.
A Preference for New Construction
Developers and investors clearly prefer recently constructed facilities with multiple floors and sophisticated climate-control systems. The days of building individual garage-like storage units, with roll-up doors and spread out across large lots, are long gone. Indeed, the average size of a new, multi-story storage facility today ranges from 80,000 square feet to more than 100,000 square feet, according to market data.
But if developers and investors can’t find existing modern facilities to buy or available land on which to build, they’ll often opt to convert vacant or underutilized industrial, retail and other spaces, ideally in or near residential neighborhoods where the majority of self-storage customers live.
According to local industry figures contacted by Banker & Tradesman, recent repositioning of properties into self-storage have taken place in Gloucester, Framingham, Hudson, Marlborough, Norwood, Quincy, Wakefield, Waltham, Westborough, Worcester and in the Boston neighborhoods of East Boston, Roslindale and West Roxbury.
Rick Griffin, a partner and chief investment officer at R. J. Kelly, said his Burlington-based firm is currently planning to turn a former youth sports complex near Route 3’s Exit 5 in Plymouth into an 84,000-square-foot self-storage facility. In addition, R.J. Kelly just recently completed the ground-up construction of a new, 103,000-square-foot self-storage facility at 480 Centre St. in Quincy.
R.J. Kelly, which owns and operates 10 facilities under the Stor-U-Self brand, has also converted smaller warehouses into self-storage facilities in Wakefield, Westborough, and West Roxbury over the last five years, Griffin said.
That rekindles the topic of Amazon and other major e-commerce companies, which are also scouring the area for properties and posing competition for self-storage developers.
“There’s definitely some overlap,” Griffin said. “Companies like Amazon are looking for roughly the same types of space as self-storage developers.”
In other cases, giant e-commerce players need much bigger facilities – often in excess of 200,000 square feet – with high-bay loading docks and plenty of paved outdoor space for delivery trucks to dart in and out on a regular basis.
E-retailers also generally prefer their facilities to be located in industrial parks, while self-storage owners want their facilities located as close as possible to residential neighborhoods, where the vast majority of their customers live.
Multi-story climate-controlled facilities have replaced garage-like units as best-in-class options for self-storage developers.
Utah REIT Seeks Bay State Sites
Then there’s the question of the “highest and best use” of properties. Usually, Amazon and other large e-retailers can outbid smaller self-storage players when they do compete to acquire existing buildings or available land, industry figures said.
Sometimes self-storage facilities are the prey, not the predator, of a developer seeking space for more profitable commercial real estate ventures. In July, Related Beal announced plans to develop a 3-story, 101,000-square-foot life-sciences complex at 420 Rutherford Ave. in Charlestown. The site is currently home to a CubeSmart self-storage facility.
“Sometimes self-storage isn’t the highest and best use of a property,” said David Grossman, co-president of the Grossman Cos. “You have to find the right locations for them.”
In the past, Grossman Cos. has dabbled in the self-storage market, both through acquisitions and conversions.
Grossman said his firm earlier this year bought an undisclosed mixed-use site – containing retail, industrial and office space – south of Boston and is weighing plans for a self-storage conversion.
Still, he stressed that self-storage is not his firm’s top development goal, compared to other commercial real estate classes, such as residential and offices properties.
“We really like self-storage as an asset, but it’s rarely our primary interest,” he said. “It’s an option for us.”
It’s not an option for Extra Space Storage Inc. The publicly-traded real estate investment trust operates 71 self-storage facilities in Massachusetts, 46 of which Extra Space owns and the remainder of which it manages as a third-party operator.
Greater Boston is considered a “very strong” market for self-storage and Salt Lake City-based Extra Space is always on the hunt to add more facilities to its local portfolio, whether they’re existing modern self-storage facilities or appropriate sites that can be converted, said Jeff Norman, senior vice president of capital markets for Extra Space.
“We’ve seen a fair amount of older properties that could be converted,” he said. “But we’re selective on how we proceed. Sites need to have high traffic, near [residential] areas. They need good street signage and visibility. If we can find a good site, we’re interested.”
