Inside Self-Storage

SEP 2018

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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Page 31 of 63

D uring the current self-storage development boom, much attention has been paid to increasingly large projects in big cities and their immediate suburbs. These 1,000-plus unit facilities with all the bells and whistles are impressive. However, smaller, rural markets are attractive for many investors, as they can be more approachable. Building in a secondary or tertiary market requires a different strategy. Here's advice on how to locate, build and manage these properties. Choosing a Market One of the first questions a self-storage developer faces is whether demand exists to support a project and, if so, how much should he build? Expert analysis is standard for large facilities, but in small markets, the high cost of a professional study and lack of readily available data often lead to a do-it-yourself approach. Ideally, you're looking for an area in which existing facilities are at least 90 percent full. If you find a three-year-old property sitting at 60 percent occupancy, it's likely an indication that the market is saturated. Conversely, it's a good sign for a new development if existing sites don't present themselves well or are slow to respond to inquiries. Rental rates for new properties can easily be 20 percent higher than those of a poorly run or neglected site. Also, look for markets in which the properties don't show up in a Google search or there's a clear lack a Web presence. If these operators don't accept credit cards or have an online reservation system, you have the opportunity provide a better rental experience. Once you've identified a market with opportunity, dig deeper. Compare Finding Success in Smaller Markets Pursuing 'more approachable' development opportunities By Steve Hajewski population against existing supply to see how they stack up to national averages. When calculating demand, there are two ways to look at it: • What percentage of households rent a unit? (The national average is 9.5 percent.) • How many square feet of storage per person exist in the market? (The national average is 8.32 square feet.) Bear in mind that markets with higher amounts of boat/RV storage (e.g., vacation areas) may support more square feet per person due to the larger units. Planning the Build When building self-storage in small markets, phasing is key. It minimizes the risk and creates the shorter rent-up period these developers typically desire. Building in phases also allows you to finetune the unit mix as you grow. On the downside, you'll have to go through the lending and permitting process multiple times. Here are some other common aspects to building in secondary and tertiary markets: • Storage facilities in small markets are less likely to be climate-controlled, though developers are building them in more suburban and rural areas. • In rural markets, facilities are more likely to offer larger unit sizes, including boat/ RV units and possibly outdoor parking. • Basic drive-up buildings are more likely to be 40 feet wide than the 30 feet you'll fnd in more densely populated areas. • Small-market facilities are more likely to be operated without a manager. The offce isn't a necessity and may come with a later phase if at all. Enhancing the Customer Experience It's extremely rare to be first in a market. Today, nearly all new self-storage facilities are going into areas with existing competitors. Yet, you can stand out and command premium rents by offering a better customer experience. An easy feature to start with is security. Modern video cameras are reasonably priced, offer detailed resolution and an excellent value. If the budget allows, a fence and gate are next. Adding a few architectural elements to your facility can improve the overall appearance of the property. Landscaping is another area where a small investment can make a big improvement in curb appeal. In addition to offering a better physical product, you need to provide excellent service. Operators of existing sites, particularly ones that are nearly full, aren't always great at responding to inquiries. About half of prospective customers simply rent from the first business they contact. Your goal is to answer promptly and rent that unit before the competition ever has a chance. Managing to Budget Small-market self-storage properties require a different management approach than their larger siblings. Generally, the revenue can't support an office with a manager, at least not during the first phase. The most basic method of managing a rural site is to run it from your phone, and set appointments as needed to meet new clients. Some owners incorporate a small office or unit for rental activities, but the corresponding lavatory requirements often push a formal office out of the budget. 30 ISS I September 2018

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