Rental-Rate Strategies for Self-Storage: Improving the Health of Your Store
|Copyright 2014 by Virgo Publishing.|
|Posted on: 04/24/2013|
By Carol Mixon Krendl
“Oh, no, we can’t possibly do rent increases now!” This is what most self-storage managers say about the task of raising rental rates, no matter what state the economy is in.
In the early 80s, I was working with a self-storage manager in Sacramento, Calif. We’ll call him “Bill.” His goal was to have his store 100 percent occupied. It was how he defined his success as a manager.
One lovely March morning, I walked into Bill’s store, looked over his reports and said, “Wow, we desperately need to do rent increases!” Bill got red in the face and yelled, “You can’t do this to me! I am 98 percent occupied, and I won’t be able to get to 100 percent if you go up on the rates!” I calmly replied, "Yes, that's probably true. But if I don’t raise the rents, I will be mismanaging this store. And you may want to think about the success of the store as dollars in the bank vs. occupancy.”
Some self-storage owners and managers are focused only on the physical occupancy of their property; but this is only one factor in its overall health. Unit occupancy rates may mislead you into thinking the store is doing well. If a facility is 86 percent occupied but bringing in money as if were only 38 percent occupied, there are several potential problems at the store. For example, maybe employees are giving substantial rent discounts or the store's delinquencies are too high.
It’s common to see under performing storage properties (typically from poor management), properties in subpar locations, and properties in lower socio-economic areas having to give more concessions to get new customers. However, offering too many concessions or keeping the rates too low will dramatically affect the profitability of a store.
Understanding Economic Occupancy
Whether you have a new or mature property, it’s time to closely examine the economic occupancy. This is the amount of money deposited, expressed as a percentage (i.e., gross potential rent divided by actual income).
Here’s an example: During a recent audit, a self-storage property had 85 percent of its spaces occupied. However, it was depositing money as if it were 60 percent occupied. There are several reasons why this disparity may occur between the physical occupancy and dollars deposited:
Increasing the Standard Rates
Each unit size should be viewed as a different product. If you’re more than 90 percent occupied in any particular size, look for customers who are paying less than the standard rates. Most industry software programs offer reports that show every customer, the rate they’re paying, how long they’ve been at that rate, and the percentage of discount off the standard rate. Customers who’ve received substantial discounts should be eligible for an increase.
You may be wondering about the logic of increasing customers’ rent in today’s economic climate. Obviously, it needs to be executed with a great deal of thought. It’s important to know your competitor’s prices and availability before increasing rental rates. Keep in mind that if you have long-term customers who have received substantial discounts and your competitors are full on that unit size, it’s a perfect time to do an increase.
Most experienced storage operators do a conservative rent increase of 6 percent to 7 percent. Giving an increase that’s too low ($1 to $3) or too high may cause the customer to move out. Even if the rate increase is fair, you should expect some customers to move out. In fact, you know it will happen, so you can rent the space at a higher amount.
At one of my Hawaii locations, I’ve had to execute substantial rent increases ($50 to $150 per month) on more than 900 customers. No, that’s not an exaggeration! We had several upset customers but only lost 10, partly because there was nowhere else to rent.
Know Your Competitors’ Pricing and Availability
It’s important to consistently do competitive surveys. In a competitive market, that may mean monthly, and in more rural locations, it might be done quarterly. Prices and specials may vary based on incentives offered on the phone or your competitors’ websites.
Furthermore, it’s important to find out their availability in the particular units sizes on which you plan to increase rent. Be careful not to lower your prices just because the competitor has a lower price or a special you’re not offering. This is especially true if you have a state-of-the-art property.
Properties in Rent-Up
New self-storage properties should be handled cautiously. Most have a difficult time gaining enough of a market share to “rent up” in a typically expected fashion. To keep a consistent number of rentals, you’ll have to use a flexible pricing structure. The prices you may have promised the bank may not be achievable at this time. Be careful not to lose potential customers because of your inflated expectations.
Practically, you need a rental incentive plan that gives you several specials in your marketing tool chest. For example, not every customer is going to rent with a "pay three months in advance and get the fourth month free" incentive. Customers on a strict monthly budget will generally not choose this option.
Consequently, it’s important to have different types of specials that will meet customers’ financial and storage needs. For example, you might offer the second month free, 25 percent off four month’s rent, pay six month’s rent in advance and get the seventh month free, or $1 move in. There’s a reason large operators offer the $1 move-in special. It’s a great move-in incentive and keeps the standard rate high after the first month of concession.
Work On Your Selling Skills!
In a difficult economy, it’s especially important to make the most of every sales opportunity. Work on your selling skills on the telephone and in person. The better you are at selling and building rapport with the customer, the less you’ll have to give away.
Also, great sales people know how and when to offer specials to get the customers to come in and visit. Once they’re in the store, you should close more than 90 percent of customers. Good luck, and be happy that you’re renting space!
Carol Mixon Krendl, owner of SkilCheck Inc., has been involved in the self-storage industry since 1984. She has written many articles on a variety of self-storage topics including a quarterly newsletter on sales and customer service. SkilCheck Services came about to help her educate the public on the importance of good customer-services skills in the self-storage industry. To reach her, call 800.374.7545; visit www.skilcheck.com.