Self Storage Expansion - Market Study

[Weina Shi]

Dear fellow investors,

I am purchasing a self storage facility. It has a 250+ units of existing facility and expansion opportunity on the same parcel for an additional 500+ units. The supply in the area is very limited and the rates are 20-30% below competitors (but competitors are in a bigger town). How do I assess the market to see if there is enough demand for the additional 500 units? Ideally, I would like to raise rates to be closer to competitors and at the same time maximize the expansion and income as well?

Alternatives I can raise rates first and once close to competitors' rates consider the expansion. However, the plan is already approved for expansion (pending permits) so it might be good to utilize the plan and avoid future zoning change.

Anyone had done this type of assessment?

Thanks.

[Henry Clark]

@Weina Shi

Self storage is very location specific within 1 to 5 miles.

1.  Check with your zoning department and see if Light industrial allows self storage, if you will need to get a Special Use or Variance approval.  What other zones allow storage.  This will answer any "assumption" on expanding if allowed or not.

2.  Same as Zach Quick mentioned.  Expand as you need it.  So if your at 90% occupancy and the next "run" of buildings adds another 50 units, then do it.  Don't build to the extra 500.

3.  Assessing Market:

3a.  How many units are in the area, within 3 miles?

3b.  What is the population in the area.  Use a market rate of 6 units per 100 population (don't trust me, you need to validate this).  

3c.  Example analysis:  Use your town of Wellesly, MA.  28,700 population;  Then potential is 28,700/100 * 6= 1,722 just for the city.  Lets say there is no storage outside the city, but there is an additional 5,000 people nearby, then another 300 unit market.  Total market of 2,000 units.  Now go count the number of units.  1.  Lets there are 2,500 units in total; but they are on the West side of town and your location and most of the population is on the East side of town, then great.  2.  Lets say there are 1,500 units, compared to the 2,000 potential.  Great, both build more and raise the prices.  Make sure you are in a good location and can't be out positioned as in "1" above. 

4.  If 3c, says not to build, then see if zoning allows you to do parking space rental.