How to Analyze a Market for Self Storage Deals

[Clay Kramer]

Hi,

I've been looking into self-storage, but market evaluation seems very different than residential.  Does anyone have some tips on how to analyze a market when evaluating deals?  

I'm primarily looking into purchasing a self storage facility with low economic occupancy with the strategy to improve the business through capital improvements and technology.  

[Neil Henderson]

There’s a lot that goes into it but I’ll give it a 10,000 foot view shot:

- Self Storage is a very localized market. Meaning, your market is 1, 3 and 5 miles in your basic urban environment. Those measurements grow and shrink as population density decreases. Rural area markets are more like 5, 10 and 20. It’s your Trade Area and it basically depends on how willing people are to drive to your business.
- Is the property on a main road or side street? Highly visible on a street with high traffic counts are preferred.
- In a residential, industrial or commercial area? Residential and commercial are preferred.
- Is the market high growth or stabilized? Storage is a Transition business. Typically does well when people are moving in and out of town or moving in and out of houses.
- Is it near high-density housing/apartments? If it’s in a neighborhood with large houses with lots of garages, it might struggle to draw customers, unless they’re storing large RV’s and other toys. General rule of thumb is you want at least 25% of the housing within 1 mile to be high-density. The kind of housing that is light on storage space.
- Current population growing or declining? I prefer growing populations but because storage is a Transition business, money can be made in declining markets.
- Market Description:
1. Undersupplied? Demand > Supply
2. Oversupplied? Supply > Demand
3. Equilibrium? Supply = Demand
- Watch for concessions (I.e. 3 free months with rental)
- Calculate the Supply Supply Index
Net Rentable Square Feet/Population = Square Feet per Person (7.5 to 7.8 sq ft per person is generally considered to be equilibrium. Less than that it’s undersupplied. More than that and it’s oversupplied.)
- Ideal Market Demographics as defined by the Self Storage Association
- 5,000 people within 1 mile radius
- 40,000 people within 3 mile radius
- 80,000 people within 5 mile radius
- Median income of $45,000 or more
- Traffic count of 10,000 cars/day
- 25% of housing is high-density