Every unit at Cottonwood Self Storage in the Denver, CO, suburb of Thornton has been full for more than a year. Space remains scarce at its three local competitors as well.
“I think it’s because we have so many people moving into the state,” said Tom Peterson, manager of Cottonwood. “I call the 30 people on our waiting list when we get a vacancy, but probably half of them had to look elsewhere.”
No vacancy is a great problem to have if you’re a storage operator, right?
Probably not. Full occupancy can be a mixed blessing if you lack the tools and foresight to take advantage of it.
“You don’t want to be 100 percent full,” said Anne Ballard, president of marketing, training and development for Atlanta, GA-based Universal Storage Group. “If someone pulls up with a full U-Haul and says they’ll pay any price to store with you, the last thing you want to tell them is that you’re sold out.”
Raising the rent
Major storage brands have a straightforward revenue management solution to keep occupancy and profit at ideal levels.
“They just raise their prices,” said Bill Cohen, CEO of New York City, NY-based Andover Properties, which operates under the Storage King USA brand. “It’s all done based on algorithms that are not too different from airlines. What doesn’t create vacancies at least adds more to the bottom line.”
Smaller operators, however, typically have more to lose by adopting such measures. Instead, self-storage executive Mark Beck advises mom-and-pops to focus on the ideal occupancy mix necessary to meet year-over-year earnings goals.
“If you’re at 94 or 95 percent occupancy, your prices are too low—period,” said Beck, vice president of California-based StorCal Self Storage. “Many of the larger REITs look at 88 percent as their sweet spot. The fuller you are, the greater your chance of leaving money on the table.”
For advice on raising your rental rates, visit blog.selfstorage.com/self-storage-operations/how-to-raise-self-storage-rent-5214.
Managing your revenue
Ballard said revenue management by unit size is key to optimizing rates when demand is strong.
“As you see one size reaching 90 percent occupancy, you want to raise its street rate,” she advised. “And maybe you raise some of your existing customers’ rates and get rid of those move-in discounts to force some move-outs so you have product to sell.”
To learn more about revenue management, visit blog.selfstorage.com/self-storage-operations/guide-to-revenue-management-5300.
Beck said you shouldn’t be afraid to push the envelope on rate increases. Last year, he successfully bumped up rates in some high-demand markets by more than 20 percent.
“Now that the market is much stronger, rather than just doing small rate increases, it’s appropriate to test out greater increases and see what happens, knowing you can back off if needed,” he said. “But that requires a systematic approach that some smaller operators may not have the software to do effectively.”
Coping with high demand
In addition to keeping a close eye on revenue management, here are five more ways that storage operators can take advantage of a high-demand market.
“If we run a demand study and see that the area is already underserved by 50,000 square feet, we’re going to consider building,” said Ballard, the Universal Storage Group executive. “Build some more units before your competition does.”
Combine or divide units to meet demand, convert units to climate control, or add overhead storage to units with high ceilings to maximize occupancy and rents. If space and zoning allows it, consider mobile freight containers. It’s also a good time to set up that merchandizing space you’ve been considering.
For insights into buying, buying and expanding in self-storage, download this free white paper: selfstora.ge/buildbuyexpand.
3. Cut Back on Promotions.
“We haven’t quite figured out how to wean ourselves off of that entirely, but it’s no longer ‘Six months, half off!’” Beck said.
“This is probably one of the best times in history to get the highest possible value,” Ballard said. “It’s a very good time to sell.”
To learn about selling your facility, visit blog.selfstorage.com/self-storage-mom-and-pop/storage-facilities-for-sale-3082.
5. Outsource Management.
If you’ve been thinking of retiring but don’t want to miss out on the upside of a bull market, hand the reins to a third-party management company instead.
“That way, you enjoy the cash flow without the hassle of managing it,” Ballard said. “In a hot market, we could definitely generate about 20 to 30 percent more income than an independent operator off the very same units.”
Is a third-party management company right for you? Find out at blog.selfstorage.com/self-storage-operations/third-party-management-3100.
Supply and demand
Getting back to the “no vacancy” issue at large, how did markets that were starved for tenants just a few years ago suddenly find themselves with no room?
“The major reason is there has been so little new storage development since 2008 and 2009,” Cohen said. “The population has grown, more people are working and moving, but there has been very little new storage space coming onto the market.”
That timeout during the Great Recession hit some regions harder than others, according to Beck.
“Some markets, like Colorado, Texas or Salt Lake City, Utah, had occupancy in the 90 percent range because there wasn’t a lot of new development in the pipeline going into the recession,” Beck said. “There’s a lot of development underway today, but it won’t add more square footage to those markets until those projects are completed.”