Self Storage Supply and Demand

Currently in the self storage industry there is a substantial gap between locally operated storage facilities and those operated by individuals experienced in self storage.  Recently, one of the top self storage companies looked at purchasing a facility owned by a local operator.  During this process it was apparent to the analyst at the top storage facility that the local facility was grossly mismanaged.  The facility lacked many of the amenities provided by more experienced owners as well as a computerized system for record keeping.  As you can imagine the lack of organization was reflected in the facilities lack of revenues. All in all the facility was an utter mess.  Without the self storage experience needed to understand market demand and the importance of a quality location entrepreneurs continue to flood the market with misplaced and mismanaged facilities.  These facilities struggle to attract customers and in turn operate at low occupancies. 

Individuals inexperienced in laying out self storage facilities often times build facilities with too many small units.  Small units get a higher dollar value per square foot but are much harder to rent up.  Large facilities laid out with many small units often have low occupancies.  While large units have a lower return per square foot they are more utilized by customers which creates higher occupancy.  Individuals who have not been in the industry for a substantial amount of time fail to lay out facilities to fit their geographic location.  While smaller units are often harder to rent up, that mantra is not always true.  Some facilities located in cities require large amounts of small units while other facilities located in rural areas call for larger, more spacious units.  The unit mix for a facility should be determined by the market demand in the area that the facility is being built.  Inexperience and lack of planning has been the down fall of many self storage investors.     

Struggling facilities are good news for investors in the self storage industry.  With ample cash on hand, companies at the top of the industry can purchase mismanaged facilities at discount prices.  The implementation of experienced management and demanded amenities makes these once unsuccessful facilities into cash cows in the self storage industry.  Changes made to these facilities can be as simple as adding security features, employing an onsite manager, contracting a call center, or expanding advertisement.  On the other hand, changes to these facilities can be complex and difficult.  Buildings often times need to be completely renovated.  This process includes changing unit sizes, building structure, and climate controlled features.  Major renovations like these are not for the faint hearted investor.  Major renovations should only be attempted by companies with construction departments employing designers and project managers.  While technology such as excel and computer animated drawing is making it easier to design facilities and set up project budgets, it still takes extensive training using these technologies to be successful in running a project.  To conclude this blog entry it is important to point out that there is an exception to every rule and if you have a level business head on your shoulders you can make owning a self storage facility work by following the examples of the top industry companies. 

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Disclamer: This entry is intended to promote our partner StorageMart and some or all participants received compensation.

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