Many investors and developers are being enticed by the self-storage industry because of its great reputation. Numerous articles have discussed how it’s “recession-proof,” and how facilities are so full these days that operators are turning away customers. Some owners simply want to diversify their portfolios; others are intrigued by the facilities they see being built, wondering whether the use might be appropriate for a piece of property they already hold.

If you’re thinking about developing a self-storage facility, regardless of what’s driving your interest, you should never proceed without first hiring a feasibility study. This report is critical for two reasons. First, it’ll help you determine project viability. In other words, it’s a way to confirm that the facility you want to build can legitimately succeed, based on several factors. For example, you may think you can build 130,000 net rentable square feet, but in reality, the market can only absorb 60,000. Second, if you are moving forward with the project, you’ll need the study as part of your application for financing.

Developing a self-storage project can be time-consuming and expensive. Moving forward without a thorough feasibility study can be a very costly mistake. You can’t just go with your gut. You can’t even assume that just because all the facilities in an area are full that the market will support more. Before you make the critical decision regarding whether to proceed or pull the plug, hire an independent consultant to make a full viability assessment. It’ll save you time, money and headaches down the road.

Getting Started

Your self-storage feasibility study should be conducted by a reputable, qualified company that’ll answer all of your questions and look at your proposed project objectively. The company should have extensive experience in the industry and understand what makes a site truly successful in this business.

When vetting potential providers, ask for the yes/no ratio on their studies, and inquire about any experience they may have in operating self-storage facilities. For example, if they own or manage any sites in your area of interest, it puts them in a good position to provide firsthand knowledge of the market.

Also, ask if the provider can offer you a preliminary report. This won’t go as in-depth as a full study, but it can provide a valuable initial assessment. It’s also less expensive, ranging in cost from $899 to $2,500 vs. $6,000 to $12,000. If the preliminary findings look favorable, you can move forward with the detailed report. Requesting a prelim can be an affordable way to sidestep a project that obviously isn’t worth pursuing, and some providers will even apply the cost of that initial study toward the more comprehensive report.

Finally, when purchasing a full self-storage feasibility study, ask whether it’ll be compiled remotely from an office or if the company has “boots on the ground.” Visiting the market and existing self-storage sites in person can be very valuable and help provide confidence that you have a true picture of the situation.

Key Report Contents

Now, let’s look at some of the items a thorough self-storage feasibility report should include.

Area demographics. These include things like local population, median household income and market growth.

Current supply. Your market’s self-storage absorption level is the number of square feet available per person. The rule of thumb is to find supply at a maximum of 7 square feet per capita. Your feasibility report should provide a figure for overall supply as well as one for climate-controlled space and class-B properties and above. This’ll provide a clearer picture of what’s lacking in the area and help you understand what you should build.

Competitive analysis. The study should identify each self-storage site in the proposed trading area, including their occupancy and supply of traditional vs. climate-controlled units. It should also highlight amenities and add-on services such as keypad entry, door alarms, truck rentals, etc. This allows you to see what’s already present in the market vs. what you may want to build. For example, if everyone is offering door alarms, is this something you also need to provide, or can you cross it off the list?

The competitive analysis should also provide insight to future supply. You need to know if there are other projects in the development pipeline and what they may entail. Similarly, an overview of future housing and retail developments in the area will provide insight to market growth and customer demand.

Income and expenses. The financial section of your feasibility study should give you an idea of what your proposed self-storage facility will be able to offer and earn. It’ll include potential rental rates for traditional vs. climate-controlled units as well as vehicle-storage spaces (if included in your plan). It’ll also provide a suggested unit mix or count.

If you’ve already started the planning process with the municipality, the report will also incorporate zoning and related information. Similarly, if you’ve got a piece of raw land and don’t know what to do with it, this section will suggest possibilities based on the findings.

Finally, this section will offer a lease-up projection that indicates how long the site will take to reach a stabilized occupancy as well as recommendations for potential rate discounts and increases. Some studies may also include a breakdown of construction costs.

Executive summary. This is a brief digest of the detailed information shared throughout the rest of the report. It should give you an accurate picture of the market and the framework to help you decide whether the project is viable. It should help you understand what (if anything) to build on the target location and what to expect by way of financial return.

The Will to Walk Away

Remember, the goal of a self-storage feasibility study is to obtain objective evaluation and independent analysis. You want to know all the reasons why you should—or should not—move

forward with a project. For example, if the report shows facility occupancy is low throughout the market, that could signal low consumer demand. Even if the absorption rate looks favorable, low occupancy could mean the area is oversupplied.

While future supply is also an important metric to consider, it can be difficult to accurately predict. The information source is critical. If you and your feasibility consultant aren’t speaking with the correct person at the city or county level, you won’t get precise or complete data on which to base decisions. Someone who can speak to the municipality on your behalf about self-storage projects in the planning process will give you a picture of future competition and insight as to whether officials will be receptive to your development.

Prepare yourself: Your self-storage feasibility study will likely reveal more potential negatives than positives. As difficult as it can be to pull the plug on a site after investing a lot of time, money and energy, it’s sometimes the most prudent decision. It’s also a way to protect yourself financially. If it’s clear that the target market doesn’t have supporting demand or rates, you may have to start over; but don’t give up! Another site or market may offer the perfect opportunity.

Pushing Forward

Hiring an experienced, impartial third party to evaluate your potential self-storage project should give you the confidence to move forward with your plans or give you solid reasons to sidestep a costly mistake. Once you have a site and a favorable feasibility study that align with your vision, share the report with your lender to continue the process. You’ll then be able to work with your development team and/or management company, using the findings to design, build and operate a facility that’s set up for success. Good luck!

Eric Blum is president of BMSGRP Self Storage Consulting, a Coral Springs, Florida-based firm that offers a variety of industry consultation services including site planning, zoning, feasibility, operations and more. He has more than 15 years of self-storage experience. To reach him, call 866.279.5673; email [email protected].