In order to generate more revenue from your self-storage business, you can do one of two things: either increase your occupancy level or charge more per unit. Although it can initially be nerve-wracking, raising rent is a prudent and necessary business practice, especially in the storage world.
Street Rates are Occupancy Dependent
When deciding on a basic street rate, you have to take your occupancy level into consideration. For example, if only 20% of your units are occupied, you want to offer rates that are comparable or lower than your competitors’ rates. Alternatively, if you have a high occupancy rate–say 90% or higher–you don’t have to compete on price, and you should charge as much as you can on those few remaining units.
Raising Rent is Length-of-Stay Dependent
When it comes to raising rent, many factors should be taken into consideration, the most important of which is how long the tenant has been there. According to industry expert Kenny Pratt, the general rule of thumb is to increase rent by 7% every 9 months. Pratt received this data from a detailed analysis done by Kent Christensen, the former CFO of ExtraSpace.
At the very minimum, you need to raise rent every 12 months in order to account for inflation. It’s also wise to roll out your rent increase incrementally, say 10 units at a time, in order to handle complaints and get a feel for the reception.
If tenants are habitually late on their rent payments, they’re already paying much more than they should be. This type of tenant will most likely not object to a price increase.
On the other hand, be wary of hiking the rent up on those tenants who are meticulous about paying on time, such as those who use a credit card to make their monthly payments automatically via direct deposit. These folks will be much more likely to balk at a rent increase. Tenants who use coupons and specials are also clearly more price sensitive.
Everything else being equal, tenants with larger units will tolerate rent increases more than tenants with small units.
Customers with upstairs units are less likely to move than customers with drive-up access or units on the first floor.
Noticeable Improvements to Facility
Whenever you have visible improvements to your facility, such as new buildings, security cameras, gates, landscaping, or asphalt, go ahead and use this as a rationale for increasing rent.
Dealing with Complaints
If you have a high occupancy level, you should let tenants move out if they are unhappy with the rent increase. However, if you have a particularly low occupancy rate, you may want to waive the rent increase or even cut the complaining tenant’s rent. That being said, even if you have 20% occupancy, the best practice is to raise the tenant’s rent after they’ve been there for nine months. Industry experts have shown that operators can raise rent by 7% every 9 months without any negative impact whatsoever.