When was the last time you took an in-depth look at your local market and your facility’s competitive position? Would you be prepared to compete against a new facility? In these uncertain economic times, a facility checkup is a crucial exercise to ensure a healthy future for your business.
Be on the lookout for certain symptoms indicating an ailing market. Begin by keeping detailed records of all phone and Internet inquiries from renters, and track how many of them turn into paying customers.
Over several months, you’ll be able to see if the pace is holding steady or if calls and conversions are declining. A downward trend in the percentage of inquiries turning into renters could indicate a serious condition in the market.
Also, review your rental-rate history and note trends following your last rate increase. If you lost customers as a result, determine how long it took to lease up again. Renters becoming more price-sensitive are another indication your market is tightening.
Finally, don’t forget to track your physical and economic occupancies. If you’ve increased rental concessions and incentives to maintain your occupancy then your market could be in for a decline.
Several underlying factors contribute to a declining market, the first of which is today’s unstable economy. The credit crunch and decline in the housing markets have left many families with less discretionary income. The result is fewer first-time renters and also a potential loss of current customers who can no longer afford to rent a storage space. Seasonal changes in occupancy can also be a factor, so be sure to keep good records over the years to note the normal flow of business or any anomalies that might reveal an unusual spike or drop in business.
Also, don’t overlook the possibility that an oversupply of self-storage is affecting your market. Overbuilding is a serious problem in many cities throughout the United States and often has damaging effects on the rest of businesses in the area. Consider how a new facility in an established market area can impact the overall occupancy of the market.
For example, let’s envision a market with 300,000 square feet of self-storage supply in a 3-mile radius. If the market has an overall occupancy of 85 percent, then the current demand for self-storage is 255,000 square feet. If a developer plans to enter this same 3-mile radius with a new facility, consisting of another 60,000 square feet, then the new total supply of storage in this market would be 360,000 square feet. At the current demand of only 255,000 square feet, this new market would now be facing occupancy of around 70 percent, down nearly 15 percent from its stabilized rate!
It would take a tremendous amount of population growth or additional demand coming from outside the 3-mile radius to return this market back to 85 percent occupancy. What should concern all current owners most is the older, lower-quality facilities will likely suffer the worst decline because the new site—with all its bells and whistles—can draw customers from the competition.
Taking preventive action can make all the difference in how your facility weathers a changing market. We’ve developed an annual facility check-up list to accurately evaluate your operation against current and potential competitors. This evaluation, combined with your own valuable experience and knowledge, will give you tools to make informed decisions about how to remain competitive.
A word of caution: You must be completely objective when completing the evaluation and as thorough as possible in obtaining all details. Your results need to accurately reflect the market conditions to be useful to you.
A sample copy of the check-up form is included with this article to illustrate the analysis. If you would like a blank form, visit www.selfstorage.com/argus/toolbox/checkup.htm to download a copy. The form is merely a guide, so feel free to add other items to the list that affect your market.
To begin the checkup analysis, you need to define your market trade area, generally a 3- to 5-mile radius from your location. You may also want to include additional facilities just outside this area as they have the potential to impact your market.
Plotting all of the self-storage businesses in the area on a map will give you a good idea of market supply and what areas are likely to see future self-storage development. Visit your local planning and building department to inquire about projects on the drawing board; they could play a major role in the future success of your business. Add these locations to your list and then commence your evaluation by visiting all the facilities. Talk with the manager or owner at each location to learn as much as you can about their operations and how they market to potential renters.
Following your visit, use the checkup form to rank various criteria on the list such as location, visibility, access, signage, traffic counts and appearance. Be as objective as possible as you rate each item on a scale from 1 to 10. Obtaining each competitor’s rental rates will also help give you a better picture of the marketplace. If you can’t get these during your visit, try calling the facility to get an idea of their salesmanship and special offers. You must be careful how you obtain rental rates because discussing prices with competitors could be considered antitrust price fixing. It’s best to do this anonymously.
Last, but not least, perform the same evaluation on your own facility. Add the scores and look at the various rental rates, noting where you rank in relation to the competitors on your list. If your scores are lower than the average in any of the categories, consider those items to be a priority for your next maintenance project or capital improvement.
Perhaps you will also find that new or planned projects will significantly enlarge the market and that you must take some dramatic steps to remain competitive. Even if you have the best property in the best location in market, you will know better how to sell your facility against the competition and where you can benefit from the pricing structure.
Let’s review the sample checkup to see what the future looks like for this hypothetical market. The property at 8th & Main earns average scores among the group and also has competitive rates. Its greatest advantage is high traffic exposure, which is a factor an owner has little control over.
Ash & 4th is pricing units significantly higher than the group, which is likely hurting its occupancy. If the owners bring their rates down to a more competitive level, they could impact the market as they enjoy a high-visibility location with excellent access.
The facility on First Street is a strong competitor with good occupancy and high scores in all categories. The New Project entering the market has the potential to do some major damage. It has a high-traffic location and an appealing appearance, plus the facility will likely have all the bells and whistles to attract new customers.
Our Facility is in a relatively good position for now. Our occupancy is the highest among all the competitors and rates are average for the market. Once the new project opens, we will have to address the low scores in signage and visibility to avoid falling victim to the inevitable drop in occupancy that will occur.
An Apple a Day
We recommend completing the checkup process at least once per year to be sure you don’t miss any pricing changes or competitive threats on the horizon. A completed checkup provides you with some very powerful information to prepare for the future and, over time, you will possess a tremendous amount of information about the trends and intricacies in your market.
With a potential recession looming and problems in credit markets, these steps—taken now—will help you weather tough times. Being proactive, rather than reactive, is the best way to ensure your self-storage business will be strong and healthy for years to come.
Amy Hitchingham is vice president of the Argus Self Storage Sales Network. Created in 1994, Argus is one of the nation’s largest networks of independent real estate brokers specializing in buying and selling self-storage facilities. For more information, call 800.55.STORE; visit www.selfstorage.com.