If you built a storage facility last year, you were just one of the many: the industry broke records in 2017, with just under 4 billion dollars spent on new self storage construction - doubling new build spending in 2016. With all the new competition popping up and class-A properties taking over, passive storage management is becoming a thing of the past. If you want to weather this self storage boom, you’ll need to lean in and get serious about your storage business’s success. If you’re ready to take an active approach to managing and improving your self storage brand, check out these top owner and operator tips and put some power behind your investment:
Whether you’re just researching the industry before investing in land, you own one small facility, or you’re managing a multi-million dollar portfolio of storage facilities, the market research never stops. Self storage is one of the fastest-growing commercial property uses in America, and many markets are at risk of being overbuilt. New developments are bringing a surge of new supply to the market and competition for tenants is fiercer than ever. Before you join the storage boom and start building, you’ll need to conduct thorough research to ensure your market has the growth to sustain another storage facility.
Research valuation and acquisition trends and learn from other operators’ wins and losses in your market to create a competitive advantage for your business.
Start secret shopping your competitors and find out what they’re offering. Throwing a structure together and naming it AAA Storage to get first dibs in the Yellow Pages isn’t enough anymore - as self storage becomes more and more saturated in metro areas, competition becomes even tougher and gaining exposure is a challenge. You’ll need to have a differentiator from your rivals, whether that’s better security, high-quality customer service, free moving trucks with rentals, or indoor RV parking. Whatever your “wow” factor is, continue to hone in on it and refine it to find a way to compete with the storage facilities down the road and prepare for an eventual downturn. Watch the vacancy rates in your market and study rent rates in your metro area to stay competitive and prepare for any economic storms that are headed your way.
Learn more about industry trends: What’s the big deal with automated self storage facilities?, Self storage design gets sexy in 2017, and New trends hit self storage lien laws.
The absolute best metric for analyzing your storage property’s recurring revenue and maximizing your profit is economic occupancy. Economic occupancy highlights the difference between current income and potential income, and the rate is much more telling of your business’s success than physical occupancy numbers like unit occupancy or square foot occupancy. In fact, the physical occupancy of your facility may be 90%, but if you’re giving deep discounts on rent and not increasing rates over time, your economic occupancy might be only 70% of potential income.
Your economic occupancy rate should be less than 10% below your physical occupancy rates in order to maximize profits at your storage facility.
So how does economic occupancy work? Here’s an example: If you have 100 units, and 90% of them are rented at full price, your physical and economic occupancy would be exactly the same: 90%. Take those same units and rent 50 of them for full price and 40 of them for half off, and your physical occupancy will still be 90%, but your economic occupancy will only be 70%, because you lost 50% in potential revenue with the deep discount on the 40 units. You could still increase your economic occupancy without increasing rates, but only through late fees. In fact, if you’re renting units at full price and enjoying a high economic occupancy, you can actually exceed 100% economic occupancy through the collection of late fees.
There is certainly a place in self storage for specials and discounts, and they’re invaluable at filling up your units when opening a brand new facility. But after you start bringing in renters consistently, it’s time to start crunching your economic occupancy numbers to find opportunities for increased profit. If your facility is enjoying near 100% occupancy, your rates are likely too low, and you’re missing out on bringing in more revenue every month. By analyzing economic occupancy, you can make more money on your existing space and get a better return on your self storage investment.
Top tips for rate management: How to use your facility’s occupancy rates to maximize profits, How to handle a price increase, and 15 metrics every storage owner should be tracking.
Even if you’re a seasoned real estate investor, if you’re looking to dip your toe into the storage industry, seek the advice of seasoned professionals in that arena. Self storage is a whole different beast than apartment or single-family tenant management, and you’ll want a team of experts on your side to help you through the learning process. Self storage is different, all the way down to how potential renters search for and choose space online.
Have a team of experts on your side to help you navigate self storage property building and acquisition woes, lien law issues and legal concerns, and security, software, and web marketing decisions.
Get with a seasoned self storage broker or consultant to help you make buying or building decisions, a self storage organization to help you navigate the legal landscape of storage, and a technology team with expert knowledge on the industry before pulling the trigger on security, software, or online marketing tools. If you rush the process and make the wrong choice, it could end up costing you thousands to change things up and resolve the problem later. Nothing tops proven industry experience (and knowledge of your unique market) when seeking the advice of a self storage professional.
Resources for new storage owners: 5 things to know before you become a self storage owner, Top 7 facts about building a self storage facility, and 4 niche storage ideas to explore for your new build.
In today’s hot market, building relationships with industry professionals and storage brokers is more important than ever - an experienced broker can help you find the right opportunities for your market whether you’re looking for a turnkey property or land to build on, and a tech team with knowledge of the niche storage industry can set you up for success against competing brands.
Thanks for reading! If you liked this blog post, you may also like: Competing with the REIT next door: How small storage businesses can thrive in today’s market, 10 things smart self storage investors do before 10 a.m., and The ABC's of self storage technology.