The First Steps to Making an Offer - The Supply Index

Before you can make an offer on a property, you need to evaluate the Supply Index. This is a common term that lets you know about the market saturation. If the market is oversupplied, then you have too much self-storage per person in that area and you may not be able to increase occupancy levels as a result. On the other hand, the supply index may indicate that the market is undersupplied and the need for storage is greater than you anticipated.

You calculate the Supply Index by taking the net rentable square footage in a particular market and you divide that by the population. Once you have that number then you can compare it to the current national supply index equilibrium to see if you are over or undersaturated.

So how do you get those two numbers. It is actually pretty easy. The easiest way to find out how many people live in a city is to go to the city website. If you are looking at a smaller portion of the city, see if the city breaks the population down by zip code.

Now that you have the population, you need to find out the net rentable square feet of self-storage in your area. Go to Google Maps or Google Earth Pro and draw a radius around the facility that you are considering. Now you can do a search for self-storage within that radius. Google can measure the buildings and tell you the square footage of all of those storage facilities that appear on the satellite. This will give you a rough idea of how much rentable square footage is in within your area.

Now you can divide the square footage by the population, and this will give you a number. This is not a perfect method, but it is a quick way to get an idea of where the market is right now. But, if you don’t know what equilibrium is for that area, that number won’t do you any good.

For years the equilibrium was defined as somewhere between 7.5 and 7.8 square feet per person. This is where supply equaled demand and most of the facilities within that area were roughly 85% to 90% occupied. However, recently the equilibrium has been raised to 8.3 square feet per person. Now this number can change depending on your area. You need to find out what it is for your particular market.

Finding properties that are located in a low supply index is exactly what you are looking for. This is one way to back into a market to quickly determine if you are interested in a location. This is really important if you are doing conversions or new construction. Start looking for areas with a low supply index. As always, happy investing.