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The Self-Storage Feasibility Study: Understanding the Process

John Gilliland Comments
Continued from page 1

Demographic analysis. Who are your customers and how many are there? That is the question this section should answer. There are several indicators that bode well for self-storage. Apartment renters are typically good tenants, as well as military and college students. Household-income levels give some clue as to the likelihood of renting self-storage. Be careful of levels that are too low (can’t afford it) and too high (will build their own storage in their 10-car garage).

Residents in rural, suburban and urban areas have different motives for self-storage use. Your provider should be experienced in these various markets and rely on industry data to make an educated estimate of the customer base. This will later be used in the demand analysis.

Competition analysis. Every site has competition. To a greater or lesser extent, competition will determine how much storage you build and the rental rates you can achieve. Your feasibility-study provider should personally visit each competitor and provide a report on the location, general appearance, security, occupancy levels, rental rates, manager capabilities, store hours, amenities offered and size of the project.

Determining the average unit size also will help in designing the ideal unit mix for the subject property. All this data will be used to determine demand and rental rates, as well as how to operate the store competitively. A map showing competitors’ proximity to your potential store and pictures go a long way in telling the competitive story.

Supply and demand analysis. This is the most critical part of the study. It must answer the question of whether there is remaining demand to support the development of a new store.

Supply is the easy part. Simply visit each competitor in the market and determine how many square feet or units it has. The market may be measured in blocks in the urban areas and miles in suburban and rural markets. Three and 5-mile market rings are the most commonly used. Be cognizant of drive times. In traffic-congested areas, drive time will be more critical than distance.

There are numerous methods employed to determine demand. Square feet per capita is the old standard, which has generally been replaced by units per household. The formula used is not as critical as the provider’s experience using it. What’s the history of projects built based on his formula? Did they meet their lease-up projections? Be sure there’s some room for error in determining the project’s viability. In other words, make sure there’s excess demand in any market you’re considering, not just enough to squeak in your project.

Financial projections. If the supply and demand analysis is the most critical, the financial projection is the second most important. There are markets in which there’s excess demand, but due to low rental rates or high construction or land costs, the project cannot meet the financial return hurdles demanded by most developers.

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