Determining Self-Storage Equilibrium in Rural Areas

The National Supply Index Range is between 6.5 and 7.5 sq. ft. per person, but it can vary depending on individual market conditions and other variables. When you are evaluating rural areas for self-storage, the question isn’t what number should I use, the question is what methodology should I use.

Whenever you look at a self-storage property, you want to complete a Market Supply Index just to have a number to work with. Then you want to get that number in context by looking at other self-storage facilities nearby. Is there a discrepancy or do they seem to be in line with one another?

You also want to evaluate the Stabilization of the self-storage facility. This is typically a range between 80% and 90%. If all of the Self-Storage Facilities have high vacancies, then you can assume that it is because of the marketplace. If they all have a low vacancy, then you can also assume that it is because of the market.

You really shouldn’t have much of a difference on occupancy. Now you might have outliers, for example, the property you are pursuing might have a high vacancy rate because it is being mismanaged while all the other self-storage facilities have a low vacancy rate.

The opposite can be true about occupancy levels. If the property you are looking at has a high stabilization rate while all the others have a low occupancy level, then this property is the outlier. There is very little chance that you will be able to raise rents or increase the occupancy levels on this property.

When you are looking at a rural self-storage facility you also want to look at typical lot sizes. When you are dealing with rural areas that have large lots, then they can store their treasures on their own properties. They don’t need self-storage.

There is a difference between buying an existing Facility, improving one, and building. When you are expanding or building, an oversupplied market is a deal killer. When you are expanding or building you should always get a Feasibility Study.

Never just look at one aspect of the market. You need to get a bigger picture of what is going on so that you can make an educated decision before you buy or build. As always, happy investing.