While self-storage development might be slow to take off in some parts of the U.S., New York City, NY, is experiencing a self-storage surge.
“There is more activity going on in the metro New York area than in any other area in the country,” said Nick Malagisi, national director of self-storage at Sperry Van Ness Commercial Realty.
The SpareFoot Storage Beat has identified 17 self-storage projects that secured New York City building permits in 2014. Many more projects are on tap throughout the metro area, including Long Island, northern New Jersey and southwestern Connecticut.
The window to find new projects may be closing pretty quickly.
— Steve Clark II, vice president of Clark Investment Group
Malagisi expects demand to absorb new self-storage space that’s on track to open in 2015 and beyond. The New York metro area has about 2.5 square feet of storage per capita, according to Malagisi. That’s well below the national rate of roughly 7 square feet per capita.
Malagisi said that while demand in the New York market is strong, the number of new properties coming online is likely to heat up competition for tenants. That, in turn, will lead to discounting of rental rates, he said.
During a recent summit hosted by the New York Self Storage Association, Malagisi moderated a panel of operators who are active in the New York market. Participants discussed the flurry of development activity in the New York area.
Jim Goonan, senior vice president of development at Atlanta, GA-based Safeguard Self Storage, said his company has five projects underway in the New York market.
“We continue to look. We believe there is a lot of demand,” Goonan said.
Goonan said 20 of Safeguard’s 22 facilities in the New York area are witnessing construction of competing facilities nearby.
“We have a lot of stores, so for us it’s about picking the right trade areas and not cannibalizing ourselves, although we are seeing a lot of competitors come in and do that anyway,” he said.
Other panelists also reported robust activity in the New York region:
- Gary Sugarman, principal and chief strategy officer at The William Warren Group, said his company has three projects on tap in the region.
- Gary Delaney, president of Banner Storage Group, said his company has two projects under contract in the region and two more sites under serious consideration.
- Frank Relf, an architect who specializes in self-storage, said he’s worked on 20 facilities in some stage of development in the New York region, with more than half of them in the city.
Another operator active in the New York market is Storage Deluxe, which has seven facilities under development in the city, according to its website.
Three of the four publicly traded self-storage REITs also have New York projects in the works. Extra Space recently bought a development site in Brooklyn, NY, while Public Storage is building a 12-story facility next to an existing property in Queens, NY, and CubeSmart is working on two joint ventures in the city.
Sugarman said Santa Monica, CA-based William Warren, which operates the StorQuest brand, still is hunting for sites in the New York area, but he said it’s becoming harder to find them. Sugarman said opportunities remain in the region, but they’re not “outsized.”
With a large field of competing operators in the New York market, the high cost of development and the drawn-out permitting process, the window to start new projects is closing.
“The timing for New York City has passed,” Marc Slayton, president of storage operator Post Management Self-Storage, told The SpareFoot Storage Beat.
Slayton’s company has nine facilities under development in the city. Four are joint ventures, while the five others fall under the newly launched Good Friend Storage brand. Most of the facilities are set to open in the fall of 2015, he said.
“These are pipeline deals that I have been working on for years,” Slayton said, “and they are finally coming to fruition.”
Stephen Clark II, vice president of Wichita, KS-based Clark Investment Group, said that although the New York market is getting crowded, his company still is scouting for deals, but “the window to find new projects may be closing pretty quickly.”
The reason, according to Clark: Land prices and construction costs are rising.
Clark Investment Group is investing in six projects in the New York region. Clark recently invested in the Good Friend Storage location that opened a few months ago in North Bergen, NJ. His company also has invested in Gotham Mini Storage, which opened in January 2013.
Clark said that while self-storage demand is high in New York, some operators are building too close to one another. Case in point: A competitor in New York is developing a facility across the street from a Clark-backed project.
“You go thinking you will lease up in three to four years, but a bunch of supply getting dumped in the same spot can really get extend that time,” Clark said.