Self-storage units allow businesses to cut corners

Hawaii businesses are turning to storage units to meet their needs -- from warehouse space to office space

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Today's rising costs and faltering economy have led some businesses to get creative in meeting their office and warehouse needs.

While running a business from a self-storage unit might have seemed odd a few years back, it's increasingly becoming the new norm. Storage units used to be used primarily for keeping residential junk, but not anymore. Now, there are operating offices, industrial warehouses and museum space tucked among the old cars, kayaks and surfing gear, and overflow junk.

While other industries are struggling in Hawaii's current economy, self-storage is taking off. Demand from commercial clients has grown so much that Hawaii Self Storage and A-American Self Storage have begun to market and cater to this group. Both storage suppliers have put in computer centers, Wi-Fi and conference rooms to appeal to their business clients.

The growth of the self-storage industry in Hawaii is not surprising to real estate experts. Storage units typically generate anywhere from $3 to $5 per square foot and they are cheaper for developers to build than traditional office or warehouse centers.

And, while storage units are not necessarily the cheapest option for commercial warehouse needs, in some cases, they might be the only nearby option. In terms of office space, they fill a niche for ultra-small reasonably priced spaces that were not in the market before.

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With prime Waikiki space at a premium, Honolulu restaurateur Wes Zane didn't let a postage-stamp size lot deter him from opening up his new food concept Burgers on the Edge.

"I really couldn't pass up the corner location," said Zane, who opened up his 700-square-foot gourmet burger joint in July.

But while the Kapahulu Avenue location near Safeway was perfect in terms of customer visibility, it had the potential to be an operational nightmare. Shortly after signing the lease, Zane realized that there wasn't enough room to build a proper kitchen and offer enough seating to justify the high rent.

"We starting looking for an off-site commercial kitchen, but that would have meant tying up another lease," Zane said. "Without knowing how successful this restaurant would be, I was hesitant to do that."

Zane found his solution at nearby Hawaii Self Storage in Kaimuki. For $600 a month, he rents a 14-by-14-foot locker where he stores a fully-stocked refrigerator and freezer and other cumbersome supplies. Employees visit the location several times a day to restock.

"It would have cost me an additional $1,960 a month to find that kind of space on Kapahulu," Zane said. "It's not as convenient as being right there, but for us, this was the most feasible and cost-effective option."

With operational costs rising and the economy faltering, more businesses across the islands are struggling to control expenses. While Zane's decision to use rented storage space to meet his back office and kitchen needs is unique now, real estate experts say that if Hawaii's current economic downturn persists, it could become the new norm.

For starters, it's a model that fits into the supply-and-demand equation. The vacancy rate for industrial space is below 2 percent, excluding the Kapolei region, and smaller spaces are nearly impossible for businesses to find, said Mike Hamasu, consulting and research director for Colliers Monroe Friedlander. And, while there is about an 8 percent vacancy rate for office space, the market is still tipped in the landlord's favor, Hamasu said.

"Industrial businesses are showing increasing concern over the state of Hawaii's economy," Hamasu said. "This rise in cautiousness is beginning to affect many industrial businesses' decisions to expand or relocate."

Along with the shift into a more conservative operating mode, businesses are postponing or reconsidering major capital decisions related to facility purchases, long-term lease negotiations or warehouse capital improvements, he said.

"We are entering into a stagnant economic period. Businesses are astute enough to go into conservation mode," Hamasu said. "Why not downsize and take a smaller space in a storage unit to reduce overhead? It makes sense."

As a result, some of Hawaii's storage facilities like Hawaii Self-Storage and A-American Self Storage have begun to tap into the commercial markets. Storage units used to be primarily used to store residential junk, but not anymore. Now, there is operating offices, industrial warehouses and museum space tucked among the old cars, kayaks and surfing gear, and overflow junk.

"The commercial market used to be about 10 to 15 percent of our business, but now it's more like 30 to 40 percent," said Chris Yuen, facility manager at A-American Self Storage on Hart Street. "It's becoming a huge business for us."

The growth of the self-storage industry in Hawaii does not surprise Hamasu. Self-storage units typically generate anywhere from $3 to $5 per square foot and they are cheaper for developers to build than traditional office or warehouse centers, he said.

"It's very difficult to find small warehouse space in Honolulu," he said. "It fills a niche that the industrial market hasn't been able to fill."

If tightness in the industrial market eases, there will be less demand for commercial self-storage space, Hamasu said. But in the meantime, plenty of self-storage operators are capitalizing on current trends and market conditions, he said. Yuen's got a beauty supplier, a slipper company, a souvenir company, several restaurants and a steel company operating out of his facility.

"Businesses really don't want to sign big leases right now," Yuen said. "We saw our business begin to grow when the cost of living started to excel and businesses started downsizing."

There's been such an uptick in commercial demand for storage space that Yuen is having a computer center built. The center will include free Wi-Fi and a conference room to make it easier for business clients to operate.

Hawaii Self Storage, which estimates that at least 20 percent of its business comes from the commercial sector, has assigned a dedicated sales team to market its business products, said Hawaii Self Storage President Daniel Ho.

"We've really started going after this market," Ho said.

As a result, Hawaii Self Storage's commercial clients range from hotels to plumbing companies, wholesalers, construction companies, restaurants, pharmaceutical representatives, designers, interior supply companies, museums and entire offices, Ho said.

"We've helped a few businesses hook up phone and fax lines and put in standard doors," Ho said. "There are plenty of people who work right out of their storage units."

Hawaii Self Storage helps customize storage facilities for its commercial clients, he said. Businesses who want to operate out of Hawaii Self Storage can create custom-sized units with access to utilities. Customers also can take advantage of free parking, 24-hour security, a business center with free Wi-Fi and a conference room and locked bathroom, he said.

The flexibility of this setup appeals to clients like Anthony Perna, who works as a sales associate for Ohio-based RJF International Corp. He has filled a 20-by-10-foot unit at Hawaii Self Storage with wall-covering samples. The unit provides convenient access so that Perna quickly can get to sales calls with interior designers, architects and hoteliers.

"I live a few blocks away and work out of my home, but I have too many samples to store there," Perna said. "When I need to call on customers, I can visit my storage unit, fill up my car and be on my way."

Since Perna depends on product samples to make sales, Hawaii Self Storage's delivery policy also was very attractive, he said. The company accepts deliveries in his absence and keeps them secure until he can return to deal with them.

Free covered parking and quick access to the highway are other pluses, Perna said.

"It makes it much easier to show my products on a rainy day," he said.

On occasion, Perna even uses the Hawaii Self Storage conference room as a makeshift showroom.

"It's convenient. I can just pull out the samples for my customers," Perna said.

While this is a relatively new approach in Hawaii, Perna said that his company uses this model throughout the nation.

"Most of our reps have this business model because it's something that has been proven to work," he said. "More and more companies are using this model because more and more of them have employees that are working out of their homes."

The decision to store excess inventory at a Hawaii Self Storage locker made Jacky Buder's new store, The Barefoot League, appear more appealing to customers.

"It made our space bigger," said Buder, who opened his retail sportswear store in January.

Buder periodically sends workers to the storage unit to unpack boxes and sort retail inventory, he said.

"Accepting deliveries at our locker makes it easier to keep our store clean and inventoried," he said. "It's more efficient."

It's also more affordable, Buder said.

"If I had tried to lease the same amount of space next to my store, it would have cost me double or triple," he said.

Flexibility is key, too, Buder said.

"I'm on a month-to-month lease," he said. "This way, my storage space can change as my needs change."