Smart Growth by Mike Scanlon

Smart Growth
by Michael T. Scanlon, Jr., President & CEO, Self Storage Association

“To stop learning is to stop growing.”

Did you know that there are now 46,883 self storage and mini storage facilities in the United States? Well, according to the Self Storage Association’s new National Facilities Database, that’s true. Perhaps the most interesting impressive number is that 38,600 of these facilities have been built in the last 20 years. In fact, 6,730 facilities have opened their doors in just the last two years! If my math is correct, that means that 280 new facilities open somewhere across the nation every month. Now some of these facilities might have just 4 units, while others might have 1,400 units; but square footage aside…

That’s what I call development! That’s industry growth!

Industries can go through cycles of boom and bust. And it’s true that no two regions of the country are the same. Point in fact: people are leaving the Northeast and Midwest and are moving to the South and the Southwest. Thus, there are great regional differences that must be read into any data.

Self storage has been on a development and growth “tear” for the better part of the last 30 years. Thus, the question arises, “are we overbuilt?” The answer is both yes and no.

I believe it is fair to say that the industry cannot keep this same rate of growth and national pace of development at the current rates for too much longer. At some point such growth would have to affect occupancy, revenues and net operating income. In some markets that effect is taking place right now.

I’ve heard many owners and operators say that the secret to future growth for self storage is penetration – more American households starting to use self storage for the first time. Well, that too has already taken place. In the last ten years (1994-2004) American households have increased their usage of self storage. A decade ago, one in seventeen American families (6%) rented a self storage or mini-storage unit; today, one in eleven (9%) rents a storage unit. That represents an increase of 50 percent in just ten years. So ask yourself is there really much room left for growth via penetration. Some would say “sure.” Others might not.

According to the data contained in the Self Storage Association’s new ”Self Storage Demand Study – 2004 Edition,” it can be interpreted that those markets where there is genuine population growth still have room for development and the construction of new facilities. However, in those markets where there is negative population growth (say the “Rust Belt” states), the negative impacts of saturation are likely to set in all too soon.

According to Dr. George Leon of National Analysts Research & Consulting (the firm commissioned by SSA to conduct the Self Storage Demand Study) – “…there are some signs – and definitely concerns – that we may be exhausting pent-up demand and that new starts are trailing in some markets.”

All this leads to the conclusion that our industry is maturing. Fewer and fewer of us will be able to stand in a cornfield and hear a voice saying, “Build it and they will come.”

I’ve heard corporate CEOs say, “if you’re not growing, you’re dying.” Growth is vital to a business; but planning for growth just for growth’s sake can be risky.

From this point forward all the new the data is pointing to the inevitable conclusion that owners and investors in self storage must make smarter and wiser decisions regarding growth based on more and more due diligence.

In the short term, self storage organizations should no longer have a knee-jerk reaction to the concept of growth that says “let’s develop…let’s build from the ground up.” There are other options to ground-up development and each of us must all take a good, close, objective look at each of them.

The next time your accountant or banker asks about the future growth of your business, you can lay out some options. Ask yourself: (1.) is it time to divest or sell? If you’re on the cusp of retirement maybe this should be considered; (2.) is it time to expand? – perhaps vertically if you are on “good dirt” but limited horizontally; (3.) is it time to acquire – someone else’s “dog” could end being a “cash cow” for a sharp operator; (4.) is it time to diversify? A new retail storefront or an added car wash or some other revenue stream could help you grow if you’ve got room; (5.) is it time to take on a refurbishment? Is there a vacant building in your market that just begs to be a self storage facility; or, (6.) is it really time to build? If population in your market is still truly growing then perhaps ground-up development is the right growth option for you.

No one knows your market like you do (or like you should).

Just remember, business growth can come in many forms. Think about it. Do your research and due diligence and you’ll make a much more enlightened decision as to growth. Don’t rely on industry clichés and habits. Never stop learning. Your industry is certainly changing, the business environment is certainly changing and the market is certainly changing. Change your approach to growth decision-making. Keep on top of it all. Keep learning.

And oh…by the way…the Self Storage Association has many educational programs and two new studies that might help you to evaluate which way to go. Go to our Web site: www.selfstorage.ORG and consider attending a Conference, Seminar or Workshop or buying the “Self Storage Demand Study – 2005 Edition” and the “Financial & Operational Characteristics of Self Storage Facilities – 2005 Edition.”

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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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