As we look ahead to 2025, self-storage facility owners are navigating a complex market landscape. With demand expected to soften due to slowing home sales and rising mortgage rates, many are reconsidering their growth strategies. However, there’s a silver lining on the horizon: declining construction costs. This shift presents a unique opportunity for facility owners to expand their footprint, even in a challenging economic climate. In this blog, we’ll explore how self-storage operators can leverage declining construction costs to enhance their competitive edge and position themselves for future growth.

Understanding the Shift in Construction Costs

The self-storage sector has faced significant headwinds in recent years, with construction costs surging by nearly 50% above pre-COVID levels due to supply chain disruptions, labor shortages, and inflation. However, according to recent data from Green Street's Self-Storage Sector Update, these pressures are starting to ease. Factors such as stabilizing material prices and a slowdown in new development projects are contributing to a downward trend in construction costs.

Green Street forecasts a reduction in supply growth for the self-storage sector, with estimates for 2026-2028 reduced by 50 basis points annually. This translates to less than 2% growth per year, on average. For facility owners, this slowdown in new developments means less competition and a potential opportunity to expand existing facilities at a lower cost.

Why Now Might Be the Right Time to Expand

With construction costs stabilizing and supply forecasts tapering off, expanding your facility could be a strategic move. Here’s why:

1. Lower Capital Expenditure: The easing of construction costs means you can expand your facility without the inflated budgets seen over the past few years. This can lead to higher returns on investment as the cost per square foot decreases.
2. Reduced Competition: The forecasted slowdown in new self-storage developments creates a less crowded market. Expanding your facility now allows you to capture market share before other operators re-enter the development cycle in 2026.
3. Future-Proofing Your Facility: By expanding now, you can position your facility to take advantage of the anticipated recovery in home sales starting in 2026. Increasing your unit count now can help you meet future demand without the rush of new competitors entering the market.

Key Considerations Before Expanding

While the prospect of leveraging lower construction costs is appealing, it’s essential to approach expansion strategically. Here are some key factors to consider:

1. Market Analysis: Conduct a thorough analysis of your local market. While national trends suggest a decline in construction costs, local factors like zoning regulations, labor availability, and land prices can impact your project’s feasibility. Look for areas with stable or growing demand to ensure a solid customer base.
2. Occupancy Rates and Demand Trends: According to Green Street's report, average occupancy in the self-storage sector fell to around 91% in Q3 2024, down by 100 basis points year-over-year. Before expanding, assess your current occupancy levels and demand trends. If your facility is consistently full or nearing capacity, it may be the right time to add more units.
3. Financing Options: With mortgage rates remaining high, securing favorable financing terms can be challenging. However, the current high-interest environment might be balanced by lower overall construction costs. Work with lenders to explore financing options that align with your expansion plans.
4. Flexible Unit Mix: Consumer needs are evolving, with demand for climate-controlled units and specialty storage options on the rise. When planning your expansion, consider diversifying your unit mix to include climate-controlled spaces, drive-up units, or even storage solutions for RVs and boats. This diversification can attract a broader customer base and increase your revenue potential.

Strategies for a Successful Expansion

To maximize the benefits of declining construction costs, consider these strategies:

1. Partner with Experienced Contractors: Choose contractors who specialize in self-storage construction. They will be familiar with the unique requirements of self-storage projects, from security features to efficient unit layout, helping you avoid costly mistakes.
2. Invest in Technology: As you expand, consider incorporating smart technology to streamline operations and enhance the customer experience. Automated access controls, digital payment systems, and online reservation platforms can set your facility apart from competitors.
3. Sustainable Building Practices: With rising utility costs, incorporating energy-efficient features into your expansion can yield long-term savings. Solar panels, LED lighting, and smart thermostats not only reduce operating expenses but also appeal to environmentally conscious consumers.
4. Marketing Your New Space: Start marketing your expanded facility well before construction is complete. Use targeted online ads, social media, and local SEO strategies to generate buzz and attract new customers. Highlight the benefits of your new units, such as increased security, climate control, or easy access.

Conclusion: A Strategic Opportunity for Growth

The current environment of declining construction costs presents a rare opportunity for self-storage facility owners to expand strategically. By carefully assessing market conditions, optimizing your unit mix, and incorporating advanced technology, you can position your facility for long-term success.

While the outlook for 2025 may appear challenging due to economic uncertainties, investing in your facility's growth now can set you up to capitalize on the market recovery expected in the coming years. Take advantage of this window to enhance your competitive edge, increase your market share, and build a resilient business ready to thrive in the next phase of the self-storage cycle.