When it comes to developing and operating a self-storage center, there are a few myths that, if believed, may divert you from your investment goals. Steer clear of them, and you’ll be on your way to success.
Myth No. 1: Bigger Is Better
When formulating plans for a new store, it’s tempting to add 30,000 square feet to an average-sized facility to boost the projected rate of return, particularly when we read about a superstore with 150,000 square feet of rentable space. Sometimes facility size is determined by the size of the land parcel, with little regard to what size the market can accommodate. While there are economies of scale to be considered, bigger is not always better.
I recently asked an acquaintance about the performance of one of his 120,000-square-foot stores in the Midwest. After four years of operation, he had finally achieved 75 percent occupancy. In regard to the facility’s size, he says he would “never do that again.” While a superstore may look good on paper, it’s exponentially more difficult to achieve full occupancy.
Do you know the amount of supply in your trade zone? How much is too much? There is no magic formula. I’ve seen successful stores in parts of Southern California where the supply in a 3-mile radius is more than 20 square feet per capita. That’s outrageous considering the national supply averages between 5 and 6 square feet per capita.
Can your market absorb more storage? Where are the customers coming from? What is their lifestyle? Are the homes in the area large or small? Are there multi-family and apartment units? That’s a lot of questions, and there are more to be asked. The more answers you know, the better your odds of building the right size store.
The bottom line is you need to know your market and allow it to dictate the facility size. If you build too big, every time you look at your vacancy report, you’ll be reminded that bigger isn’t always better.
Myth No. 2: If You Build It, They Will Come
Twenty years ago, there was a lot less self-storage supply. If you built it, customers would come. But that’s not true today. It doesn’t help that a new storage facility in a good location does create additional demand, contributing to this myth. I’ll explain.
Consider the example of a new restaurant opening in town. Let’s say that on your way home from work, a “Now Open” banner caught your eye, letting you know The Greasy Spoon was ready to satisfy your food cravings. Let’s further assume that prior to seeing the banner, you had no plans to eat out that evening, intending to feast on leftovers.
After a brief discussion with your spouse, it’s decided you’ll try the latest in culinary delights at the new eatery. By being new and located in the right place—on your way home from work—The Greasy Spoon created a demand that otherwise wouldn’t have existed.
A new storage facility can similarly create new demand. Some customers would be content to let their stuff pile up in their garages or attics until you conveniently build a new facility just down the street. However, “created” new demand alone will not fill up a facility. Unmet demand must exist in the marketplace to justify a new site. Simply put, other stores in your market must show high occupancy to justify a new one.
Myth No. 3: All I Need Is a Good Website