Episode 269: How Pro Storage Compares to Traditional Self-Storage

Announcer (00:03):

This is the Self Storage Podcast with the original self storage expert, Scott Meyers.

Scott Meyers (00:11):

Well, hello everyone and welcome back to the Self Storage Podcast. I am your host, Scott Meyers, and let me be perfectly clear right out of the gate today. The era of throwing up a cheap metal 10 by 10 box on a gravel lot and printing money is officially over. Yes, you heard it here first. For the last 20 years, traditional self-storage has been the golden child of commercial real estate, and that is how I’ve made my fortunes. But right now, we are looking at a market where yields are compressing. Development pipelines and major metros are saturated and institutional capital is driven pricing to levels that are becoming incredibly hard. For the average investor to justify and imagine some of you out there who are in the throes of the industry and the looking for deals out there, I am just telling you something that you don’t already know.

(00:56):

But what if I told you there is a massive virtually untapped opportunity sitting right under our noses? An asset class within the asset class that boast higher rents per square foot, extreme tenant stickiness, which is always good. And a supply demand gap so wide it is being called a crisis. Yes. Today we are pulling back the curtain on pro storage. Now, you may have heard it called commercial storage, storage condos, small bay flex, or luxury storage, whatever you call it. It is the future of our industry. And in this episode, we are going to define exactly what pro storage is. Trace its history, look at what a typical facility looks like and break down the massive demand driving this sector. We’ll also talk about how to fund these deals and where you can build them in the hottest spots of the country right now. And make sure you stick around until the end of the episode, because I’m going to tell you exactly how you can get hands-on deep dive training on this exact asset class at our upcoming online live event.

(01:50):

So let’s get into it. So what exactly is Pro Storage? As I mentioned. To understand Pro Storage, you have to understand what it is not. Traditional self-storage is driven by consumer demand. It is the four Ds we’ve all heard about that we’ve been talking about for the past 20 years, and that is death, divorce, downsizing, and a dislocation. It is people storing Grandma’s antique couch, seasonal decorations, and college dorm furniture to say, to name a few. Pro storage on the other hand is driven by professional and business demand. These are needs-based, recession-resistant commercial storage assets built for professionals, small business owners and high-net-worth individuals. And it perfectly straddles the gray area between a traditional self-storage facility and a small industrial warehouse, and it is in high demand. Under the umbrella of pro storage, we have several distinct sub-sectors. First, you have storage condominiums or garage condos.

(02:43):

The distinct difference here is the business model. The target customer actually owns rather than rents their space. They are buying at the real estate. Second, we have small bay flex or microflex space, which you’ve heard bandied around a little bit. And these are typically 1,000 to 5,000 square foot business spaces used by plumbers, electricians, e-commerce businesses, and local contractors who need a professional home base, but cannot afford or do not need a massive 20,000 square foot industrial warehouse. And third, you have luxury storage. Think of these as high-end contractor shops or man caves. They are climate controlled workspaces where affluent individuals store their classic collections, luxury RVs, and boats, often outfitting them with wet bars, mezzanines, and private restrooms. And finally, you have enclosed boat and RB storage and industrial outdoor storage or iOS. So if you think this is just a passing fad, think again, the Urban Land Institute and the PwC just released their 2026 Emerging Trends and Real Estate Report.

(03:44):

And in that report, they officially recognize the storage industrial flex condo as a distinct emerging asset class. They noted that these units are filling a massive gap in the commercial real estate spectrum, serving both affluent individuals and commercial tenants. And when PwC and the Urban Land Institute put something in their emerging trends report, well, the institutional capital is already taking notes and lining up. Now, in terms of the history and the evolution to understand where Pro Storage is going, we have to look at where it came from and when did this all start? So the concept of the storage condo actually originated around 2002 to 2003. And so early pioneers in places like Colorado realized that people with expensive toys, Class A motor homes, offshore boats and vintage cars were incredibly frustrated with traditional self-storage. They were too small. They hated the access hour restrictions.

(04:35):

They hated that they couldn’t work on their vehicles inside the units. And most of all, they hated paying monthly rent with absolutely zero return on the investment. So developers started building large premium units and selling them outright. The first major way these facilities really started getting built between 2006 and 2008. But then, yes, the great recession hit. The housing market collapsed and the takeout financing for these prospective unit buyers completely dried up. The concept was put on ice for a few years. And then fast forward to today, the traditional US self-storage market is now a $47 billion industry with over 2.1 billion square feet of self-storage across roughly 67,000 facilities, and it is highly institutionalized. But Pro Storage, well, Pro Storage is exactly where traditional self-storage was 20 years ago. It is highly fragmented. It is inefficiently priced and it is massively undersupplied. According to recent data, the inventory of storage condos is less than 5% of the size of the traditional self-storage sector.

(05:35):

So what we’re seeing now is a massive shift. Sub-storage investors and operators like myself are moving aggressively into small bay industrial and flex space options. And why? Because the tenant stickiness is unbelievable. Unlike traditional self-storage, where a tenant can leave with almost zero friction, a small business tenant in a flex space will actually build their business inside that space. They install racking. They set up their offices. They establish their Google My Business location. They do not want to leave. So what does a typical pro storage facility actually look like? Well, if you drive past one, you might mistake it for a very clean high-end self-storage facility or a sleek modern industrial park. But the magic is in the dimensions and the infrastructure. You see, while most self-storage facilities don’t offer units larger than 400 square feet, pro storage units typically range from 700 square feet, all the way up to 3,000 square feet or more.

(06:29):

The physical dimensions are built for scale. We’re talking about units that are 50 feet deep and 20 to 25 feet wide. The roll-up doors are massive, typically 14 feet tall and 12 to 14 feet wide to accommodate the largest Class A RVs and commercial box trucks, but it is the utilities that really separate Pro Storage from traditional storage. These units are fully powered, often featuring 60 amp to 100 amp electrical panels. They are plumbed for water, which allows owners to install private restrooms or wash bays or kitchenettes. And they’re fully climate controlled, featuring heavy insulation and dedicated HVAC systems inside each and every unit. Many luxury storage facilities also lean heavily into the community aspect. They feature wide 56-foot drive aisles, so massive vehicles can maneuver easily. They offer RV dump stations, commercialized machines, and sometimes even a centralized owner’s clubhouse. Now, I want to share a golden rule that I’ve learned from talking to developers who have been in this specific niche for a long time.

(07:27):

So listen closely to this. Do not mix traditional self-storage rentals and storage condos on the exact same parcel. In theory, it sounds like a great way to diversify, but in reality, it’s a nightmare. Condo buyers take ownership to heart. They are highly protective of their property. And when you mix transient renters with property owners, well, a class division occurs, and the owners will blame every piece of trash and every security issue on the renters. That’s just human nature. More importantly, combining the two ruins your exit strategy. It really does. Think about it. When it’s time to sell, small bay buyers want pure play, flex assets, and self-storage buyers want pure play self-storage. If you combine them, you shrink your buyer pool dramatically and your pricing will suffer. So if you want to do both, build them on separate adjacent parcels. So let’s talk about now where this applies to geographically.

(08:16):

And zoning is always a piece that is a difficult or challenging, to say the least, to navigate. And so we love the concept. The economics make sense and you want to build one. The next logical question is, where can you build them? Can they be used anywhere and is there demand everywhere? The short answer is yes, but site selection for pro storage is fundamentally different than site selection for traditional self-storage. And here’s why. With traditional self-storage, you want to be right in the middle of dense residential neighborhoods, highly visible from the road, catching that retail traffic. But for pro storage, you are generally looking for industrial zoning. Industrial zoning is preferred because it often allows for this type of storage and like commercial use by right, meaning you do not have to fight a massive uphill battle for a conditional use permit. So when looking at locations, developers typically target three types of site.

(09:08):

Number one, neighborhood sites. Yes, these are close to residential rooftops. They are highly desirable, but the land is often prohibitively expensive for this type of footprint. Number two is what we call on the waysides. And these are located along major highways or thoroughfares. So easy on and off for the commercial contractors or folks that have a business there that no matter where they’re going, they’re in most major metro areas. They’re still a 20 minute drive because they don’t spend another 15 minutes getting to the back of an industrial zone. They’re right off the highway. And then three, destination sites. These are located near lakes, major RV parks or existing industrial hubs. But here is the key metric you need to remember. It’s the 20 minute rule, as we just talked about. Extensive market research shows that people do not want to drive much more than 20 to 30 minutes maximum to get to their expensive toys or to their daily business operations.

(09:56):

If you buy 15 acres of cheap land an hour outside of town, you’re going to struggle to fill it. You have to be on the outer edge of the growth path, letting the population come to you. Okay. So now let’s talk about demand because the numbers here are absolutely staggering, which is why we have been such a big fan of this asset class four years and doing it for years. And now, well, we’re leaning and tipping the scales towards more of these type of developments than our traditional self-storage developments because the demand for pro storage is exploding right now. And that’s because it comes down to a massive systemic supply gap in both the industrial and residential markets. So let’s look at the commercial side first. According to recent data, less than 10% of the nation’s industrial inventory consists of buildings that are 10,000 square feet or less.

(10:43):

The vacancy rate for these smaller buildings is sub 3%, sub 3% in many markets. There is simply nowhere for a growing landscaping company, a caterer or a specialized contractor to go. They are completely underserved by traditional industrial developers who only want to build massive 500,000 square foot distribution centers for Amazon and the likes. Then look at the residential side. Elevated home prices and high mortgage rates have trapped people in their current homes, and the share of households that mood within the past year has fallen significantly. People cannot afford to upgrade to a larger home with a three-car garage or a barn. At the same time, HOA restrictions are getting stricter, meaning you cannot park your boat or RV in your driveway. And speaking of boats and RVs, we are looking at a crisis level shortage of storage. Industry data shows that 100% more supply is needed just to keep pace with the current rate of RBM boat sales.

(11:34):

Yes, that’s 100% more supply, meaning a doubling. So who’s the tenant? Well, you have small business owners on one side and highly affluent individuals on the other. Roughly one in 10 American households has a net worth and a wealth of 1.6 million or higher. These people have the discretionary income to drop $100,000 on a luxury storage condo to protect their $300,000 motor home. For the investor and the developer, the economics are beautiful. You get higher rents per square foot and get additional income streams from things like outdoor yard space and mezzanines. And if you are building storage condos to sell, your return on investment is measured in months, not years. And we’re seeing this firsthand right now with one of our storage condo projects that we are building down in Texas right now and with more to come. So interested? Well, who pays for this?

(12:25):

Because this all sounds great, but how do we fund it? Who pays for pro storage? Well, the funding landscape for this asset class has evolved significantly as well. If you’re a buyer looking to purchase a storage condo or a small bay flex unit for your business, the small business administration is definitely your best friend. The SBA 504 loans are incredibly popular in this space because they enable a business owner to purchase commercial real estate with as little as 10% down. And this leverage is the primary factor attracting buyers who want to stop paying rent and start building equity. So if you’re a developer or an investor looking to build these facilities, the capital is lining up literally. Private equity firms and syndicators are pivoting, and we are seeing investors who build massive portfolios in multifamily and traditional self-storage beginning to reallocate their capital into small bay flex and storage continents because the yields are simply better.

(13:14):

And that includes myself as well, because many successful developers use a phased approach. They buy the land, entitle it, and build phase one. They use the pre-sales and the revenue generated from that first phase to strategically fund the build out of phase two, minimizing the overall risk and capital exposure, and obviously boosting returns in the process. It’s really a beautiful recipe. So listen, as we’ve been covering in this series of all forms of commercial real estate, the niches within the niche of storage, folks, the smart money is moving. The days of easy money and traditional self-storage are behind us, but the pro storage revolution is just getting started. It is fragmented, it is in high demand, and the opportunity is massive. So if you want to learn exactly how to capitalize on this, you need to be at our upcoming commercial storage summit. This is a live online event happening at June 4th, 5th, and 6th.

(14:06):

And so here’s what we’re doing. On day one, we are hosting an exclusive, first of all, AI workshop to show you how to leverage artificial intelligence to find deals, underwrite these types of properties, and streamline your operations. Then on days two and three, we’re going to do a deep dive into all things commercial storage. We are going to cover over 14 different commercial storage asset classes, including everything we talked about today, storage condos, small bay flex, RBMBO storage, and industrial outdoor storage. We will have all the industry experts breaking down the exact blueprints they are using to build, fund, and fill these facilities. So do not miss this, folks. Go to www.selfstorageinvesting.com. You will see the online event displayed that prominently on the front page, and that is where you register and secure your spot for the Commercial Storage Summit. Coming up June 4th through the 6th, selfstorageinvesting.com.

(14:58):

So folks, once again, thanks for tuning in to the Self-Storage Podcast. I am your host, Scott Meyers, and I will see you at the summit.

Announcer (15:08):

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