Editor's Note: This article will be part of a series of 2018 growth-focused reports that the Orlando Sentinel publishes on Jan. 21 in its annual Central Florida Business Forecast section of the newspaper:
New self storage projects in Greater Orlando tend to draw more complaints from nearby residents than any form of real estate development. But steady population growth and high profitability are driving the industry with little sign of slowing down, and developers are making leaps in design to meet urban infill standards.
Population growth is propelling Orlando's self storage market, which was the 15th fastest growing metro area in the United States through 2016, according to annual U.S. Census data released last year.
Orange County drew more new residents than any Florida county, and the area improved its rank to no. 23 nationally among most populous metros, which includes Kissimmee and Sanford.
More than 90 percent of self storage users in Greater Orlando are residential, according to local developers behind the facilities. Americans are consuming more than ever before, and the average footprint of new homes and apartments built today is smaller than those of past decades.
"The top three states in the country for self storage growth are Florida, Texas and California, all driven by new population," said Adam Mikkelson, president with Orlando-based Liberty Investment Properties, a developer that has specialized in self storage since the 1970s.
"For the consumer that can't afford a bigger house, this is a way to save their belongings and not feel pressure to move. Many see their cars as a big asset and want to park them in the garage," he said. "And over the past 20 years, new homes in Florida are being built on increasingly smaller lots, with less storage space dedicated to closets."
Self storage use by retailers is also stronger in Orlando than most markets across the country. Top malls in the area are buoyed by record annual tourist numbers, and retailers can typically pay less to store excess inventory in a climate-controlled self storage facility than within their own shopping centers.
From the perspective of developers, investors and lenders, self storage is also one of the most profitable segments of commercial real estate.
Operating costs are minimal for facilities, typically with one to two employees on duty at any one time. National brand operators are investing in technology for fully unmanned self storage centers, run through kiosks.
"Over the last five years or so self storage has become institutionalized," Mikkelson said. "(Investors) didn't view it in the same way as office, retail, industrial or multifamily. But when you look at REIT statistics in all institutional asset classes, self storage has outperformed most others consistently. So now it's on the radar of the macro market."
Chicago-based Blue Vista Capital is an example of that institutional interest in Florida self storage. The investment group partnered in recent years with Lake Mary-based developer Flagship Companies Group to build 10 new facilities in the I-4 corridor, with multiple projects now in the pipeline from Tampa to Orlando.
"The metrics are quite easy to understand. We look at the three- to five-mile radius around a potential site, and study the competition, storage square footage per population count, age of product, and in these growing markets factor in residential growth over the next five years," said Flagship's CEO Ted Bolin. "More often than not we find the Orlando and Tampa areas are underserved."
Self storage has historically been viewed as an industrial use, and designed like a warehouse with little aesthetic appeal. That style won't fly for new urban infill projects, where city codes increasingly call for a mix of uses, and a higher architectural bar is set.
"In reality this isn't industrial, from a consumer standpoint self storage is retail, and needs to function like any other retailer," said Mikkelson, whose company is planning a mixed-use self storage building on an infill site in Downtown Orlando.
"The design is becoming more dynamic, most want it now to look like an office building. There are a lot of misconceptions about self storage by urban (single-family home neighborhoods), but there is not a lot of traffic at these facilities. We're a pretty good neighbor."
STR, a global leader in data benchmarking and analytics, tracks self storage development in the top 25 U.S. markets. The company counted 264 existing facilities in the Greater Orlando market, with another 53 in development in its mid-2017 pipeline report. Last summer, STR projected 12.4 percent growth in local self storage facilities, making Orlando the fifth fastest growing market in the nation.
But in recent months the company has lowered expectations, due in part to a reallocation of labor for rebuilding efforts and hurricane relief. STR is now projecting that only 20 active projects in Orlando will actually be completed.
But while the developer is banking long-term on strong job and population growth fundamentals in Orlando, it sees the market saturating quickly with new self storage, said Rob Sucher, president of the self storage division.
"Orlando claims a heavy amount of new facilities delivered within the last couple of years and still has a healthy pipeline of new product set to deliver over the coming 24 months," he said. "We have limited our pursuit in the market to first allow the (metro area) the opportunity to absorb the surge in new product."