My calendar reminded me it was time to schedule my regular dental checkup. While the prospect of another lecture about flossing wasn’t appealing, I called for an appointment because I wish to avoid serious problems in the future. We know it’s important to maintain our physical health, but how often do we assess the health of our businesses?
As long as the phone keeps ringing and units are renting, you may think everything is fine, but when was the last time you took a good look at the state of your facility and how it stacks up against competitors? Would you be prepared to handle a new rival in your market? A facility checkup gives you the answers.
Sizing Up Symptoms
A few indicators can help determine the health of your facility and local market. First, track the frequency of phone and Internet inquiries from renters and determine how many turn into paying customers. Compare those percentages to previous years and months to see if your facility has kept pace or if calls and conversions are declining. This could indicate a more serious market condition at play.
How long has it been since you raised rental rates? Did you lose customers as a result? If you have had trouble raising rates, it may be another red flag. It’s also important to look at your overall occupancy in terms of units rented as well as economic occupancy. Did you increase concessions and incentives to keep occupancy levels up? If so, your market could be heading for trouble.
Many owners try to explain away these potentially serious symptoms. Maybe it’s just a seasonal change or the unstable economy is contributing to the slump, but do you know for sure? In many areas of the country, increased competition and overbuilding are the true culprits behind a declining market, and the effects can be devastating.
Overbuilding has become a major problem in some markets. We recently reviewed a project in a major city that has six self-storage projects in a three-mile radius with 330,000 rentable square feet and average occupancy at 85 percent. This means the current total market demand is only 280,000 square feet. Four new projects nearing completion will add another 270,000 square feet to the market—and another project is being zoned! Of course, such drastic overbuilding is not happening everywhere, but even a little oversupply in an average market can be harmful to your facility’s health.
Luckily, you have access to one of the premier experts in your local market—yourself! You’re the ideal doctor to run the checkup on your market because you have valuable experience and knowledge not available to an outside observer. However, you must be relentless in obtaining the facts and impartially evaluating the information. With a thorough checkup, you’ll be surprised at what you can learn.
To begin, you’ll need the Annual Facility Checkup List. (To print one, go to www.selfstorage.com/argus/toolbox/checkup.htm). The form works as a guide to objectively compare your operation to current and potential competitors. Feel free to personalize the analysis for your specific area. The more you put into the evaluation, the better the results.
The first step in the checkup is to define your market area. Generally, this is a 5-mile radius from your location, but don’t forget to check areas just outside the circle for potential developments or significant competitors that could impact your operation. Once you’ve determined your radius, get a map and plot all competitors for a visual picture of the market supply. Also visit your local planning and building department to find out about projects on the drawing board, and include them on the map.
Now it’s time to evaluate other self-storage sites. Visit each facility and spend time chatting with managers or owners. Immediately after leaving, evaluate the critical items on the list—location, visibility, access, signage, traffic counts and appearance. Rate each item on a 1-to-10 scale as objectively as possible. You also need to jot down rental rates. If you can’t get these when you visit, try calling each facility and posing as a potential customer inquiring about rates. This also allows you to get an idea of their salesmanship and offers marketed to renters. A word of caution: Discussing rents with a competitor could be interpreted as antitrust price fixing under federal statutes, so be careful about how you obtain their rates.
How Do You Stack Up?
Now’s the time to perform the same evaluation on your facility. Again, it’s crucial to be objective in your analysis if you want accurate results. Compare your score to your list of competitors and see where you stand. Poor scores mean you’ll have to buckle down and address weak areas to remain competitive.
Do you have some deferred maintenance that could be completed to increase your site’s appeal? Or perhaps it’s time to invest in a lighted sign out front. Anything you can do to cushion your facility’s scores relative to your competitors’ puts you in a better position to compete.
Let’s take a look at a sample checkup to see how it all comes together.
Reviewing the chart, we deduce the facility at 8th & Main represents an average for the group. The site’s rates are competitive, and it has a good location with high traffic counts. Ash & 4th is asleep at the switch. If the owners wake up and price their product at a more competitive level, they could hurt market occupancies.
The Smith Street property is strong with good occupancy and high scores in all categories. The New Project in this market is poised to have a major impact on existing facilities. It’s in a great location and the facility likely has all the bells and whistles to attract new customers. Our Facility is in pretty good shape. Rates are consistent with market averages and it has the highest occupancy of all.
But what will happen when the new facility opens? We already know there is an excess supply in the market because the average occupancy is 81 percent. When the new project adds to the current oversupply, other facilities may have to either lower rents or increase concessions to stay afloat. A smart owner would take steps now to avoid becoming a victim of the looming market slowdown. With lower scores in signage and visibility, Our Facility needs to correct some imbalances to maintain occupancy.
After completing your market checkup, you’ll be armed with valuable information to plan for—and react to—a changing market. Conduct the checkup every year to stay on top of pricing changes and new competitive threats. Even if yours is the best property in the market, you want to retain that advantage and capitalize on the competition’s weaknesses.
Just as we’ve all learned that avoiding trips to the dentist usually leads to tooth trouble, preventative maintenance for your self-storage facility keeps business healthy. It’s always better to be proactive rather than reactive. Schedule your checkup today.
Amy Hitchingham is the director of marketing and operations for the Argus Self Storage Sales Network. Created in 1994, Argus is the nation’s largest network of independent real estate brokers specializing in buying and selling self-storage facilities. For more information, call 800.55.STORE; visit www.selfstorage.com.