|The Inside Scoop|
The Health of Your Self-Storage Facility Relies on Economic Occupancy
A guest installment by Carol Mixon-Krendl, Owner, SkilCheck Inc.
Let’s discuss how to maximize a self-storage property. Some storage owners and managers are focused only on the store’s occupancy, but this is only one factor in understanding the health of the property. Unit occupancy rates may mislead you into thinking the store is doing well.
Over the years I have taken on the task of fixing self-storage properties that are in distress. Several of the stores have had unit occupancy above 85 percent, and yet, even at that high level they were not making enough money to pay the bank mortgage. In one case, the property had a physical occupancy of 86 percent but was bringing in money as if it were 38 percent economically occupied. In each case, the problem wasn’t in the unit occupancy, but in the following areas:
- Employees were giving substantial rent discounts for an unlimited time period.
- The store’s delinquencies were too high.
- Employee theft.
Even though you may experience a decline in occupancy, you can still maintain consistent revenue by increasing customer “standard rates.” It is common to see underperforming storage properties (typically from poor management), properties in subpar locations, and properties in lower socioeconomic areas having to give more concessions to get new customers. Giving too many concessions and/or keeping the rates too low will dramatically affect the profitability of the store.
Whether you have a new or mature property, it is time to closely examine the economic occupancy of the storage facility. Economic occupancy is the amount of money deposited expressed as a percentage (i.e., gross potential rent divided by actual income). During a recent self-storage audit, the property that was examined had 85 percent of its spaces occupied; however, it was depositing money as if it were 60 percent occupied. There are several reasons 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.
It is important to work on increasing your rent. Each size storage space should be viewed as a different product. If you are more than 90 percent occupied in any particular size, you should look for customers who are paying less than the standard rates. Most storage software programs offer reports that show every customer, the rate they are paying, how long they have been at that rate, and the percentage of discount off the standard rate. Those customers who have received substantial discounts should be eligible for an increase.
You may be wondering about the logic of increasing a customer’s rent in a recession. Obviously, it needs to be executed with a great deal of thought. It is important to know your competitor’s prices and availability before increasing your own rental rates. Keep in mind that if you have long-term customers who have received substantial discounts and your competitors are full on that size, it is a perfect time to do an increase. Most experienced storage operators implement conservative rent increases of 6 to 7 percent. Giving an increase that is too low ($1 to $3) or too high may cause customers to move out. In fact, move-outs should be expected so you can rent the space at a higher amount.
Carol Mixon-Krendl, owner of SkilCheck Inc., has been involved in the self-storage industry since 1984. She has written many articles on a variety of self-storage topics including a quarterly newsletter on sales and customer service. SkilCheck Services came about to help her educate the public on the importance of good customer-service skills in the self-storage industry. To reach her, call 800.374.7545; visit www.skilcheck.com.
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