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:
- Delinquent customers
- Discounts in your standard rental rates
- “Write-offs” or any concessions given to customers such as second month free, waived fees, etc.
- Employee theft
- Prepaid rent
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.