Profiting from Empty Big-Boxes: Self-Storage Conversions

by Greg Barrett


Entrepreneurs are seizing the opportunity to acquire these assets, at well below replacement cost prices – then converting the buildings to self-storage – for a hefty return on investment.


The big-box “carnage” taking place in the U.S. right now in undeniable.  As retail reinvents itself, a ton of empty space has hit the market at exceptionally low prices.  Former department stores and big boxes sit vacant in nearly every city in America, with very few retailers in the market to backfill the large-format spaces.  Entrepreneurs are seizing the opportunity to acquire these assets, at well below replacement cost prices – then converting the buildings to self-storage – for a hefty return on investment.


Why Convert Existing Boxes?

  • Conversion costs are lower than new construction
  • There are a plethora of obsolete buildings that are perfect for conversions
  • Converting an existing structure is much faster than ground up development
  • Rental rates are similar for converted buildings and  therefore converted building sell at similar pricing to new facilities


Self-storage is hot right now.  Experts predict that we are near the peak of the self-storage market in the US.  Entrepreneurs are, and have been for the last several years, buying former department stores and big boxes to convert them to climate controlled self-storage units – as demand for self-storage is on the rise.  As you can imagine, cap rates in this space have compressed and prices are at all-time highs.


It makes sense to convert large retail buildings, that are approaching functional obsolescence, to something that is in high demand.  Retailers across the board are downsizing their footprint, and very few retailers want to be in 50,000 or more square feet.  On top of that, retailers that continue to operate in big box space, will only locate in primary retail corridors with great access, visibility, and retail synergy.  Many of the big box inventory is located in secondary or tertiary retail markets and therefore sits vacant.  This creates a perfect opportunity for conversion to mini-storage.

Parameters for Self-Storage Conversion

To make their pro forma’s (and businesses) successful, these entrepreneurs are looking for real estate the fits the following parameters:

  • Great visibility and great access
  • Price: Under $40 per square foot (sometimes more depending on the market and market rents for self storage)
  • Building: Former department stores (Sears, JC Penny, Macy’s etc.), big boxes (K-Marts, Kohls, Sam’s, The Sports Authority, furniture stores, etc.)
  • Market: Top 50 MSA
  • Population: 50,000 people in 3-mile radius
  • Location: Good access and visibility, generally an interstate.
  • Size: 25,000 SF or more
  • Clear Height:  22-24 feet or more (for two levels)
  • Competition: Not too much competing inventory



The national average revenue in 2016 was $87 per unit per month.  The national average cost per square foot was just under $1.00.  Some operators have been able to achieve $1.50 – $2.00 PSF in tight urban markets.


Conversion to Inline Space with Self-Storage in the Back

Another adaptive reuse strategy using the existing inventory of big-box space is by converting the large box into both self-storage and smaller retail spaces. A large percentage of retailers, as their leases are rolling over, are downsizing their footprint.  This is most prevalent in the big-box retailer world (in situations where locations are not being shut down) but, we are also seeing this same strategy play out among retailers of all footprint levels.


Many of these large-format retail spaces and department stores are well located – benefiting from good visibility, easy access, and strong traffic counts. As a result, there are plenty of service oriented, or low-price point retailers that would like to be located in these areas.  Obviously, the depth of the big-boxes presents a problem.  As visibility and frontage for small-format retailers becomes increasingly more important, the back half or two-thirds of the box could appear functionally obsolete.  Real estate entrepreneurs have, in cases where zoning, access, parking, visibility, CC&R’s, demographics, supply and demand etc. all line up, split the box to maximize the use of the building.  What these entrepreneurs will do is chop the box up so that the front half, or front third, can be split into several retail spaces.  They will convert the remaining portion in the back into self-storage.  When possible, and when executed appropriately, the upside of this strategy can be enormous.


These are some of the value-add strategies I’ve seen entrepreneurs employ to take advantage of the big-box opportunities. There is strong demand for self-storage due to the fact that so many people are living in smaller and smaller homes and apartments.  Because their homes are small, they need an extra place to store all their junk (or valuables, but most likely junk).



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