Supply and Demand for the Active Self-Storage Investor

Supply and Demand for the Active Investor

Storage is a local business. Oftentimes, you hear people talk about the 3-mile radius of a storage facility. What they are talking about is the local demand area for that storage business. Now the radius for the property could be 4-miles, 5-miles, or even 10-miles depending on where the property is located. Heck, in Manhattan it could be 1 block! The point is 3-miles is a general radius and I will use it here for simplicity. The following article can help you determine if the property is feasible to move forward in the deal in terms of supply and demand. If you are seriously going to invest your money or other people’s money, I highly suggest you get a professional feasibility study. By the way a professional feasibility study will also include a Primary and Secondary Market Analysis (PMA and SMA). In this article we are just discussing the PMA.

There are two primary methods I use to determine supply and demand in a 3-mile radius. One is based on households and one is based on population.

Households’ method

I picked this one up by reading Mark Helm’s book, “Creating Wealth through Self-Storage”. I highly recommend the book. The household’s formula goes like this: Number of households multiplied by 10.2%, multiplied by 1.3, multiplied by 120, plus 20% (Households*10.2%*1.3*120+20%). Here it is in an example:

• Number of Households in the 3-Mile Radius: 15,968
  • 10.2% of households use storage
• Households that use storage = 1629
  • 1.3 users per household
• Number of Users of Self-Storage = 2118
  • 120 average sqft size of storage unit
• Total SQFT demand for households: 254,160
  • Plus, commercial business use adds 20%
• Total SQFT demand in the 3-mile radius = 304,992

So, it mathematically it looks like this: (15,968*10.2%*1.3*120) +20%

Now you have to find the existing total rentable square feet in your 3-mile radius. You can do this with various tools (listed below). Once you get that number, in this case 158,058, you subtract that from your number above to get 146,934 square feet of unmet demand. This is a good number!

Population method

The second is based off population in your radius. It’s commonly referred to as the supply/person or sqft/Capita. You often hear that equilibrium for storage is 7 sqft/Capita and this isn’t true. That number is the national equilibrium. You have to remember storage is a local business. That’s why we use a 3-mile radius in most cases.

The first thing you have to do is find the equilibrium point of your given radius. We do this with the Self-Storage Alamance (link below) to find the US, four states including the state in which the property you buying and then 4 to 5 metro areas near your property’s metro area (or including) to get the average. For example, in the 2020 Self-Storage Almanac, if I am looking at a property in Grove City, Ohio:

• US sqft/person = 5.70
• Ohio = 4.99
• Indianan = 5.81
• Michigan = 4.66
• West Virginia = 3.32
• Columbus, OH Metro = 6.99
• Dayton, OH = 7.46
• Cleveland, OH Metro = 6.97
• Cincinnati, OH Metro = 6.83
• Akron, OH = 7.30

Now we can average all these to get: 6.00 sqft/capita for Grove City, Ohio. Now that we know that, we get the population for the radius to calculate the current demand for the area:

• Population: 30,520
• Saturation Ratio (SF/person): 6.00
• 2020 Demanded SF = 183,120 sqft
• Add: Commercial 20%: 36,624
• Total sqft Demanded in 2020 = 219,744 sqft

So, if your current market has existing storage of say 184,502 then there is 35,242 of unmet demand in that 3-mile radius.

By the way, these two examples were of different areas. If you get different numbers for the same area that’s okay too. Just average the two or take the lower numbers to be on the safe side. Again, I encourage you to get a professional feasibility study done on every purchase. I’ve included references below.

I also want to mention that my Self-Storage Syndication Deal Analyzer has a calculator with these two methods built-in!