Thinking about opening a new self-storage facility or expanding the one you have?
The days of “build it, and they will come” are over, according to Chris Sonne, executive managing director of the Self Storage Industry Group at Cushman & Wakefield in Irvine, CA. You’d be wise to pay for a professional market study before you make any decisions, he said.
However, you still can do some preliminary work on your own.
1. Identify Your Trade Area.
Your trade area typically is a three-mile ring, according to Sonne. “Most customers are convenience-oriented and residential and don’t want to be too far away from their stuff,” he said.
Measure the size of your trade area by population density. A facility in Chicago, which has about 12,000 people per square mile, could have 50,000 potential customers within a two-mile ring. However, if you want to open a facility in Pontiac, IL, a small town with 2,000 people per square mile, your trade ring could expand five miles into rural areas.
2. Gather Data.
Before you expand or open a new facility, you’ll need to find out a few things:
- Is the population in your trade area growing or declining? Higher density and population growth generally are good for self-storage.
- Average household income.
- Percentage of renters and average household size.
- Is the economy growing steadily, declining or at equilibrium?
You might have to visit the county assessor’s office, city planning department or county treasurer’s office to get information, said Ben Bradley, development director at Self Storage Consulting Group in Provo, UT. But you also can find information online. Here are a few places to look:
- The U.S. Census Bureau’s American Fact Finder.
- Wikipedia (compare with other, reliable sources) and sites like City-Data.com.
- County and city government websites typically include statistics on population, econonomic growth and density.
3. Research the Competition.
Find out the total square footage at all self-storage facilities within your trade area. Check into the number, the sizes and the types of units they offer, such as climate-controlled, boat and RV.
“Hit the streets,” Sonne said. Go to a facility and explain to the manager why you want the information. Ask about occupancy rates over the past year and whether the facility offers rent concessions. Lots of concessions could mean that the facility has trouble staying full, and that the market is oversaturated. “If you call and they’re sold out, that’s a good sign,” Sonne said.
“Some managers will tell you to get lost, but self-storage is a nice group of folks that generally try to be helpful and pleasant,” he said.
4. Figure Out Whether Growth Is Warranted.
If your competitors offer a combined total of 200,000 square feet of self-storage in a city of 100,000 people, that’s 2 square feet of storage per person. The industry average is around 7 square feet per person. Eight square feet per person would be oversaturated, 3 square feet would be undersupplied and 7 square feet would represent equilibrium, said Steve Hryszko, director of acquisitions for The Amsdell Companies, a Cleveland-based storage operator.
“If I’m that owner and did the analysis, and all the competition is at 80 to 85 percent occupancy, is expansion warranted? Absolutely,” Hryszko said.
Since the average self-storage tenant rents 100 square feet, you’d need to rent 85,000 square feet (about 85 tenants) to reach 85 percent occupancy for a 10,000-square-foot addition, according to Hryszko. Count on a year or two to stabilize the occupancy level based on new construction.
5. Take Analysis to the Next Level.
You won’t necessarily have a competitive advantage because you built with fancy materials or the mom-and-pop location down the street is run-down. “Even if it’s old and junky, they’re still a competitor,” Sonne said. “Don’t assume that everyone is going to want what you have.”
Doing your own analysis is typically not as effective as paying a professional, but sometimes you can find out quickly that it’s “a big no,” Sonne said.
Sonne said a self-storage operator can buy a market report from Cushman Wakefield for $100. If Cushman Wakefield does all the work, including surveying the competition as part of a market study, that might run about $3,500. “If you’re talking about a multimillion-dollar storage facility, that’s not a big investment for due diligence,” Sonne said.