Competitors Crowd Into Mini-Storage Industry
After 15 years of rapid growth and easy profit, Orange County’s mini-storage industry is confronting the unfamiliar face of competition.
There were only about half a dozen of the facilities in the county in 1973, when word got out that they--and their tills--were bulging at the seams. The area’s wild real estate boom had created a seller’s market for storage space.
Soon scores of other investors, drooling over the prospects of easy money, began pouring in. Today the county has about 100 mini-storage facilities that share an estimated $50 million in annual sales revenue.
But the growing competition, coupled with a slowdown in population growth, is making things a lot tougher for an industry that has grown so accustomed to unfettered success, insiders say.
What is happening in the county provides a textbook example of the choices that an industry must make when it outgrows the frontier mentality and begins settling down.
“We’re far from the point where you buy a piece of property, put up a lean-to and expect it to fill up,” said Tom Elkins, a San Juan Capistrano developer of mini-storage operations.
“We’re now a competitive business like apartments, condominiums and shopping centers,” he said. “It’s a business that must be approached realistically, looked at economically and prepared for carefully. We are maturing, and in that maturation process there are some pains involved. . . . But if we do our homework, it’s still a viable business.”
The pains, however, must come first. And while the state of the mini-storage industry in Orange County is far from the shambles in areas like Oklahoma City--where oversupply has collided with an economic crunch--most industry insiders expect a shakeout to occur.
How fierce it will be is still uncertain, but the possibilities worry some area operators.
“There’s obviously more of a demand (for mini-storage) in growth times,” said John Yelland, a Laguna Hills-based developer and operator of several storage facilities. “But the thought that’s going through my mind is, ‘What’s going to happen when the growth stops?’ ”
When the growth stopped in Oklahoma City, the storage industry found itself hopelessly overbuilt. The metropolitan area population of 900,000 is served by about 100 storage facilities, said Joe Williams, who operates several facilities there.
Orange County also has about 100 lots, but the population is more than twice that of Oklahoma City. In a frantic bid to stay alive, mini-storage operators in Oklahoma City have slashed prices from a 1983 high of $60-per-month for a 10-foot-by-10-foot space to below $20 a month, Williams said.
“We haven’t raised our rent in three years,” he said. “And it used to be (raised) every six months.”
In Orange County--where storage facilities are among the nation’s largest and most expensive to build and rent--monthly rates for a 10 x 10 unit have climbed from about $20 to $60 in the past decade. But growing competition has caused rates to level off in recent months. In a few congested areas, such as Laguna Hills, rents even appear to be headed down.
Still, the county’s mini-storage operators say they stand on far firmer ground than many of their Sun Belt counterparts because the county’s economy is stronger and more diversified.
There is growing concern, however, that the market--at least in some areas--is becoming saturated.
Parts of County Oversupplied
Some say that pockets of the county--including portions of Anaheim, Fullerton and Huntington Beach--already are oversupplied with mini-storage lots.
For example, Yelland said, there are 6.24 square feet of storage space per capita within a three-mile radius of the Fullerton airport, and the facilities in the area are only 62% full on average, teetering on the break-even point.
Fifteen years ago, the rule of thumb in the industry was that a community could absorb no more than a square foot of storage space per resident. As the industry has developed, that figure has climbed to four square feet per capita, although operators and developers say some densely populated areas in the county, where homes tend to be smaller, can handle even more.
“Facilities fill up more slowly than they did before, and there’s a more gradual appreciation in rents now,” Elkins said. “We still really don’t know where the saturation point is, although the business is more aware of it now.”
In addition to keeping tighter controls on growth, industry operators said that the business in Orange County must begin employing sophisticated marketing techniques that were not needed in the boom days.
Above all, they say, county storage operators must learn from the blunders of their colleagues in other locales. To stay alive in a cutthroat climate, mini-storage operators in the overcrowded markets of Oklahoma City, Houston and San Antonio have had to slash prices and offer gimmicks such as free rent and gifts.
Mini-storage first appeared in Texas in the mid-60s, born out of a growing need for space as office and living quarters shrank as rapidly as real estate prices climbed.
Warehouses Unsuitable
Small-business owners and homeowners started searching for somewhere to stash the possessions that were overflowing from their storerooms and closets but found the existing warehouse industry unsuitable to their needs, said Jack Linkletter, owner of Linkletter Properties in Costa Mesa and one of Orange County’s mini-storage pioneers.
“Many saw traditional storage as highly unionized and expensive,” he said. “You had to pay to get your stuff returned, fill out forms to get at your stuff. It was inconvenient,” he said.
Enter mini-storage. It was welcomed with armloads of goods as people rushed in to store everything from worn furniture to valuable heirlooms. Some customers created weekend television rooms, erected elaborate train sets for their children, or set up workshops and garages.
The idea quickly spread throughout the Sun Belt, first to Arizona--Yelland opened the first facility in Phoenix in 1970--and then to Southern California. Today, more than 10,000 facilities are doing business nationwide, most of them in the Sun Belt states. Estimates of annual revenue vary widely, but $2.5 billion is the figure most frequently mentioned by industry insiders and observers.
Southern California was especially ripe for the new industry. Residents were more recreation-oriented and owned more equipment than they needed to store. Few homes had basements or full attics, and the rise of the condominium did away with the enclosed garage as a storage space for many.
Orange County’s self-storage pioneers--drawn here by the real estate boom of the late 1960s and early 70s--spent most of their early days convincing municipalities that they were a viable business that provided a necessary service.
“It was an educational process with the cities. They wanted to make sure it wasn’t just a fad,” Linkletter said. “In Orange County specifically, we had a real difficult time at first.”
First Put in Industrial Areas
The first mini-storage facilities were forced to join the commercial warehouses in the county’s industrial areas.
But that didn’t stop people from finding them. Soon county residents by the score were cleaning out their garages and storage sheds and heading for the local do-it-yourself warehouse.
Those early mini-storage operators had all the business that they could handle. They raised prices, virtually at will, and people still kept coming, Linkletter said.
The early success stories prompted a flood of investments in new facilities.
“It’s like gas stations,” Linkletter said. “In the early ‘60s it was a great business. You put a station on one corner, and one goes up on the other, and pretty soon all four corners have stations. (Then) you had more gas stations than you needed.”
Today, owners say that new storage facilities aren’t filling up as fast as they once did--if they fill up at all.
Still, Linkletter and others continue to build whenever they spot a hole in the county’s mini-storage supply. Linkletter is building a facility in San Clemente, an area that he said is still underdeveloped. “We have actually cut back tremendously” on new developments, he said, “but we’ll be back into it” when residential development picks up again.
Harvey Lenkin, president of Public Storage Management Inc.’s property management division in Glendale, which oversees the company’s 560 facilities--including 15 in Orange County--agreed that this area “has become extremely competitive. (Orange County) is one of the great real estate areas in the country.”
Lower Rates
Among other things, the newly competitive atmosphere means that price hikes are no longer the order of the day. Yelland said several new facilities in the Laguna Hills area have opened with lower rates, forcing managers of older sites to cut their own prices or watch occupancy dwindle.
And storage lot operators no longer draw customers just by hanging up a sign and sticking an ad in the yellow pages.
In an attempt to attract new customers, Public Storage Management Inc.--the nation’s largest mini-storage chain--launched a national television advertising campaign this spring.
Ironically, the multimillion-dollar campaign pleases Public Storage’s competitors, who hope the ads, which picture people moving belongings through the orange-colored door of a Public Storage unit, will spur growth for the entire industry.
“We can all paint our doors orange and take advantage of it,” said Elkins.
Yelland estimated that only 50% to 70% of the population today is aware of the industry. But most local mini-storage operators say that they don’t have the resources to run advertising campaigns and that such campaigns would be wasted.
Public Storage is considered by the national Self-Service Storage Assn. to be the only nationwide chain. By contrast, most of its competitors are “chains” of only three or four facilities, each serving a market of less than 10 miles in diameter, said Gayle Pierce Pohl, the association’s executive director.
“I tried a radio station on for size. It didn’t work,” Yelland said. “I tried Pennysaver (an advertising circular) and it didn’t work either. You spend more money on those things than you get tenants.”
The most crucial ingredient for success is a high-visibility location and--apparently--a brightly colored sign. While new facilities get most of their business from yellow page ads, passing motorists attracted by the facility’s signs provide about 60% of its customers, according to Yelland.
Elkins said that increasing competition also is driving operators to modernize their facilities, increasing security and designing more sales-oriented environments.
“We have to be conscious of (hiring) sales-oriented personnel,” Elkins said. “They’re not just order-takers anymore. They have to convince people that we have the best people, the safest facility, the best service and the biggest smile and we want your business more than they do.”
