How Site Layout and Unit Mix Affect a Self-Storage Facility's Profit: Understanding and Managing These Critical Components

Mike Gillikin Comments
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The success of any business is a matter of economics. Simply put, it comes down to income vs. expenses. As long as there’s more money coming in than going out, an owner can stay in business and prosper.

Self-storage adheres to this same formula, but there are nuances to our industry that are essential to success. Like any other real estate developer, the self-storage owner is concerned with financing, land availability and acquisition, construction and materials, customer profiling, marketing, and competition.

But the successful owner is also aware of every opportunity to be profitable. This article takes a look at how site layout and unit mix can affect the successful lease-up a new self-storage facility and, ultimately, an operator’s revenue stream.    
 
Efficient Use of Land

Once a self-storage operator has appropriately analyzed his market and optimally located his facility, he must determine the most efficient use of land in terms of site layout. The proper positioning of buildings on the site can be critical to an owner’s success. Poor planning will result in fewer leasable units.

In addition, the proper mix of unit sizes is one of the most important factors in determining whether a facility will prosper or languish. After all, if an owner knows who his customers are and understands their storage needs, his occupancy rates will stay high under normal market conditions.

That said, unit mix is often one those areas that can stand improvement. No one has a crystal ball to predict the perfect mix, particularly at a new facility. If an owner’s occupancy rate is good, he may think he has the problem solved. But there’s a more finite opportunity to increase profitability, particularly when the owner is adding on to an existing facility, because there’s already knowledge of market needs and limitations, thanks to the original feasibility analysis.

When determining the unit mix for an addition, there are three factors to consider: 

  • Maximizing the occupancy rate
  • Maximizing total square footage
  • Maximizing rent per square foot

Rent Per Square Foot vs. Occupancy

Occupancy rate and total square footage are important, but what good are they if rent per square foot is too low? When discussing an addition with an owner, there’s often a good deal of confidence placed in the facility manager regarding unit-mix decisions.

Quite often the owner will ask the manager, “What do you think we need to build?” Of course, managers welcome this question because their bonuses and incentives are sometimes tied directly to occupancy rates, and higher occupancy tends to bring praise from owners.

There’s no question occupancy rates are important, but there may be something equally critical missing from the equation. Wouldn’t the owner be more profitable if he could increase the number of units and earn a higher rent per square foot? Managers often suggest adding larger unit sizes such as 10-by-20s, 10-by-25s and 10-by30s, concluding that these units get a higher rent and are, therefore, more profitable. That’s not necessarily the case.

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