Self-Storage Investing – How Do You Create Demand for Your Units?

The short answer is that you cannot create demand. There is a certain amount of demand in each area for self-storage. You cannot force people to store their belongings. Only about 10% of the population in an area uses self-storage. What you can do is you can take a bigger piece of the current rental pie.

One of the first things that you need to find out before you invest in a self-storage property is what the current rental saturation levels are. If you are buying in a market that is oversaturated, you have more self-storage then you have renters. This means that no matter how good your advertising and marketing is you won’t be able to fill your facility to maximum occupancy levels.

You might be looking at a property that is 30% occupied and think, wow, I can bring this up to 80% or 85% and increase my profits and the value of the property. However, if the current market is oversaturated to the point that all the self-storage facilities are occupied at 30%, it is unlikely that will happen.

In order to avoid buying in an oversaturated market, there are a few things that you can research to see if you want to invest. Start by finding out what the population is for the 3 mile radius around the facility you are looking at. Now you are going to determine how many self-storage facilities are within that 3 mile radius.

Once you have these two numbers, you can determine the saturation level. Start by dividing the population by 8.2. Your local Realtor may increase or decrease this number based on their market. Once you divide the population by 8.2 you will know the maximum amount of self-storage that will be rented in that 3 mile radius.

Now that you know how much self-storage you need, you need to find out how much you already have. Go to your county records and find out how big each facility is. If you need 250,000 square feet of self-storage and there is only 100,000 then your market is undersaturated and you should have very high occupancy levels with a possible wait list. On the other hand if you have 300,000 square feet of self-storage then you have to much and your market is oversaturated. This means that 50,000 square feet of self-storage is never going to be rented. If there are only 2 self-storage facilities in that radius, you are going to have 25,000 square feet of unrentable units.

If you assume that on a bell curve the average unit is 10x10 or 100 square feet, then you will have approximately 250 vacant units. Your research is just preliminary to your feasibility study. However, if you find out that the market is oversaturated you may be able to avoid the cost of a feasibility study by not buying the property. Or you can make the offer knowing that you are not going to be able to improve your occupancy levels. This may mean a much lower offer.

Always do your research. Whether that is before you make an offer or during your due diligence period, you need to know everything you can about your property. When there is no demand for self-storage, it is difficult to get the cash flow you want. Protect yourself by researching the demand in your area. As always, happy investing.