Five years ago, then-fledgling local real estate investor Taylor Preston was scouting out opportunities when presented with the chance to purchase his first self-storage facility.
Since acquiring Arrington Storage in Williamson County, the principal in The Natchez Group and his business partners have bought three other Nashville-area self-storage facilities. They’re building four with plans to pursue at least three other developments.
“We looked at Middle Tennessee as a growing market and we thought it was an under-supplied asset here,” Preston said. “We were trying to go into Main and Main locations with high barriers to entry plus good demographics and build truly Class A storage.”
Nashville’s 11.6 percent population growth since 2010 and demand for extra space from tenants of the many new apartments and condos built to accommodate residents have fueled construction of more self-storage space plus expansions of existing locations. Among the nation’s top 25 metro areas, Hendersonville-based researcher STR ranks the “it city” No. 1 for expansions of existing self-storage facilities, second for projected percentage increase to supply and fourth for overall number of development projects.
Louisville, Ky.-based developer Andover ManagementBuy Photo
Louisville, Ky.-based developer Andover Management Group is building the 143,000-square-foot, climate-controlled Citadel Self Storage facility at Interstate 40 and Fesslers Lane. The address will be 506 Fesslers Lane.
But with growth comes concerns about potential local overbuilding of storage space, with Preston citing the area south of Broadway among places with a large number of new units coming online or set to be built.
“It’s a slow lease-up asset in general, so we’ll see where the new supply pushes rates,” said the developer, who along with partners just started building a six-story, 89,310-square-foot project in the SoBro area where industry giant Public Storage this year will start building the state’s largest self-storage facility.
In Public Storage’s recent second-quarter earnings conference call, executives said the real estate investment trust was going to start reducing rates significantly in some of its major markets and also increase marketing spend as necessary to drive volume.
Rent growth stabilizing
Among signs of slower growth ahead, Austin, Texas-based online storage marketplace SpareFoot.com’s tracking suggests self-storage construction activity has peaked around Nashville, with monthly average rent for a unit also leveling off across the region. That’s after a 35 percent increase in the average rent from $69.36 in 2013 to $93.39 this year.
A perspective view from Lafayette Street of the 242,000-square-foot
A perspective view from Lafayette Street of the 242,000-square-foot self-storage facility that Public Storage plans near downtown (Photo: Metro Planning Department filings)
“You saw record occupancy in the last year and two to where they were able to charge more,” said Alexander Harris, SpareFoot.com’s web editor. “Nationwide, the consensus is that 2017 is going to be the peak year for construction, then 2018 you’ll see a peak in completions. Nashville is actually a little bit earlier in the cycle, starting to pass its peak.”
Other observers, however, remain bullish on the Nashville market.
“I don’t think we’re at risk of being oversaturated because of the growth here, but you need to pick and choose your locations wisely,” said Tommy Pierce, president of A+ Storage of Tennessee LLC.
In his 20 years as an operator, Pierce has watched the industry transform from drive-up outside self-storage built on 4 to 5 acres to now a greater percentage of climate-controlled units in multistory projects on smaller parcels because of rising land costs.
A rendering of the six-story, 89,310-square-foot SoBro
A rendering of the six-story, 89,310-square-foot SoBro Storage building that The Natchez Group and Atlas Real Estate Partners just started building at 825 Third Ave. S. in SoBro.
“Out of necessity facilities have gotten more visually appealing in order to pass muster with local planning commissions and neighborhoods,” Harris added. “They look more like office buildings now than what you typically envision a self-storage drive-up facility.”
Pierce attributed the local growth to institutional funds now recognizing Nashville for its growth and the self-storage niche as a safe, recession-resistant investment. “Smaller condos and apartments are part of the growth,” Pierce said. “Part of it is also the baby boomers are downsizing and retiring and our whole culture is a bunch of pack rats.”
Renters of the self-storage units vary by location. At A+ Storage’s Gulch location on Nashville’s Division Street, commercial users account for 60 percent of the customers. Pierce said residential users can account for nearly a third of renters in the suburbs.
Ashley Compton (Photo: Colliers Nashville)
After several years of strong interest in Nashville from national developers, some are becoming more cautious, said Ashley Compton, the locally based national director of the self-storage group with commercial real estate services firm Colliers International. In recent months, some abandoned downtown-area projects due to high land costs and Public Storage’s announcement of a planned six-story, 242,000-square-foot self-storage facility that will replace its location in the Lafayette neighborhood south of Broadway.
But others continue to plan self-storage facilities across the region, hoping to ride the Nashville area’s projected growth to more than 2 million residents by 2020.
Workers tend to the construction site for Melrose storageBuy Photo
Workers tend to the construction site for Melrose storage at 702 Inverness Ave. on Thursday, Aug. 3, 2017.
“It’s just a race to capture all of the people moving to Nashville, the businesses as well,” Compton said. “The underlying appeal for investing in self-storage is financial returns closely correlate to multifamily (apartments), but without the risks associated with tenants living on-site. The operating expenses for multifamily are exponentially higher than self-storage due to the need for unit refurbishment upon a tenant move-out, a larger staffing requirement and community amenities such as fitness centers and swimming pools.”
More units coming, including with wine cellars
Amid an increasingly crowded marketplace, some players are raising the bar when it comes to curb appeal and using other offerings to differentiate from other facilities.
Bee Safe Storage and Wine Cellar, the upscale self-storage brand that Greensboro, N.C.-based multifamily developer Roy E. Carroll II is looking to bring to Nashville, offers a secured wine cellar section under its business model.
Workers tend to the construction site for Melrose StorageBuy Photo
Workers tend to the construction site for Melrose Storage at 702 Inverness Ave. in Berry Hill.
“You can put up to 20 or 30 cases of wine in there and our system can give a printout of how that wine was stored, show the humidity range and temperature every day,” Carroll said, citing as potential patrons restaurants, members of “Wine of the Month” clubs, people who don’t have wine cellars in their house as well as wine collectors. “Our buildings look like office buildings.”
Carroll said he has four Nashville-area sites targeted for Bee Safe self-storage facilities.
Meanwhile in Nashville’s Germantown, the six-story, 100,000-square-foot self-storage facility investors Mark Tarver, Bobby Kirby and Jewel Hale plan is expected to include roughly 7,000 square feet of retail space at the request of that historic neighborhood.
Investors Mark Tarver, Bobby Kirby and Jewel Hale have
Investors Mark Tarver, Bobby Kirby and Jewel Hale have planned a six-story, 100,000-square-foot Germantown Storage building with roughly 7,000 square feet of retail space in Germantown.
Tarver said it is cheaper for some apartment and condo dwellers to put belongings in storage than to pay for or buy more square footage of living space. “A lot of projects have been absorbed and a lot of projects are under construction,” he said, however, about supply. “I think that will slow down the lease-up of those self-storage facilities.”
Although demand remains high among institutions for buying self-storage facilities, The Natchez Group’s Preston said he takes a long-term view and builds projects on what would remain “great” locations for a decade or two. “We’re not merchant builders building to flip,” he added.
Reach Getahn Ward at email@example.com or 615-726-5968 and on Twitter @getahn.
Higher storage cost
The average monthly price for a self-storage unit in the Nashville area has risen 35 percent over the past five years but is leveling off.
A self-storage building boom
Metro Nashville is ranked fourth among the nation’s top 25 metro areas for the number of active self-storage development projects, including new construction, renovations and expansions.
Metro statistical area, Number of projects
Dallas-Fort Worth-Arlington, Texas, 122
Miami-Fort Lauderdale-West Palm Beach, Fla., 93
Denver-Aurora-Lakewood, Colo., 93
Nashville-Davidson-Murfreesboro, Tenn., 90
Chicago-Naperville-Elgin, Ill., Ind., Wis., 88