Some people thought there was no way self-storage construction spending could keep pace with last year’s growth rate of more than 70 percent.
It actually hasn’t kept pace, it’s accelerated at a 124 percent annualized rate instead, far exceeding the wildest expectations of veteran industry observers who say the self-storage construction market is approaching levels not seen since the boom years prior to last decade’s financial crisis.
“At this point, I’m just trying to ride the wave,” said John Bull, owner of Portland, OR-based John Bull Builders LLP, a subcontractor for larger self-storage construction contractors.
“It’s full throttle for us,” said Caesar Wright, president of San Diego’s Mako Steel Inc., a self-storage contracting and engineering firm. “The industry is as busy as it’s ever been.”
While welcoming what many now consider an outright construction boom, particularly in the northwest and southwest portions of the U.S., contractors, subcontractors and suppliers report they’re beginning to see the downsides of a thriving construction market. Construction costs are starting to bite into margins. Skilled workers are getting harder to find as prices for some commodities, especially steel, have seen wild swings in recent years and even months.
The country’s overall unemployment rate is 4.9 percent, what economists consider to be “full employment”. That gives workers more bargaining power when it comes to demanding higher wages. And that’s exactly what’s happening, with economists noting that workers in general are beginning to see income growth ranging on average from 1 to 5 percent.
But within the construction field, some builders say they’re now paying skilled workers 20 percent to 30 percent more for labor. One reason for this is that the supply of skilled trade workers has gone down over the past ten years, with many workers retiring or just leaving the industry after last decade’s real estate crash.
“I’ve been advertising to hire people but I’m not getting many responses,” said Bull, noting his top priority now is keeping his current employees happy, well paid and productive.
For Dennis Rome, co-owner of Pinnacle Commercial Development in New Jersey, his more pressing problem is the cost of commodities. He estimates costs have risen by about 5 to 10 percent in the past year or so. Those aren’t earth-shattering numbers, but they do signify an industry that’s heating up.
Rome estimates the price of concrete has increased about 10 percent in the past two years, while the price of steel has skyrocketed about 30 percent. Indeed, federal government data shows steel prices spiked in 2015, then plunged in early 2016, then rebounded again in late spring, only recently flattening out in recent months. Rome said he’s also worried the industry may soon see spikes in copper prices.
Record high spending
The self-storage market is now the second fastest growing industry in the country, behind only the fabricated metal construction sector. Through August, the value of self-storage construction was pegged at $1.2 billion, compared to $534 million during the first eight months of 2015, a 124 percent increase, the latest data shows.
With four months of reporting left, self-storage construction spending this year is on track to set a record high—beating 2007 when $1.22 billion in spending was reported.
Though that’s a blistering pace, Pinnacle’s Rome — whose company is now involved with 12 self-storage construction projects, most of them along the East Coast – said he likes the current expansion. He describes the current cycle as a “more smart” recovery than what was seen last decade. Contractors are more “strategic” in selecting where to build, rather than taking a build-it-and-they-will-come attitude toward constructing new facilities, he said.
Top of the bubble?
Chris Woodward, president of SS20 Building Systems Inc., a Florida maker and installer of steel structures for multi-story self-storage facilities, said business overall is going “quite well” in his general market area east of the Mississippi. “There’s a lot of construction going on,” he said.
He agreed that it’s hard to find skilled workers and that labor costs are going up as a result. “It’s been difficult,” he said. He said the key is not to “overextend” the company and to work with the employees one already has on its payrolls.
Woodward said he believes that “we’re at the top of the bubble” and that the industry should calm down soon, allowing prices to stabilize.
“We hope and think prices will come down,” Woodward said.