If there was a self-storage soapbox and I was standing on it, what you’d hear me yell to developers is, “Get a feasibility report!” This advice should ring louder than ever with so much new square footage hitting the market.
The self-storage industry is very lucky to have access to quality market data. Perhaps no other business has feasibility studies that are so accurate. Why? Because properties like office and retail regularly draw users from across town or the next town over—not so for self-storage. Most of our customers rent a unit very close to where they live or work, so it’s often fairly easy to identify the target market for a new project. For example, 86 percent of my customers live only about 3 miles from their chosen facility.
If you’re looking to build self-storage, a quality feasibility study will provide you with a detailed snapshot of your desired area and the potential customers within it. It’ll also help you determine how much self-storage already exists in the market, how much is coming online, and whether there’s sufficient demand to support more.
So, if you’re planning a new self-storage project, get a dang feasibility study! Given that you’ll already be spending millions of dollars, why in the world would you not invest a bit extra to ensure your business can succeed? Perhaps you aren’t familiar with feasibility studies and the valuable information they provide. Let me shed some light on what a good report should include.
What It Should Cover
There are good feasibility reports and then there are bad ones. I’ve seen plenty of both. When looking for someone to conduct your study, ask for a sample of one he’s produced previously. What are you looking for? In a word: data.
Your self-storage market study should address the site’s visibility, traffic count and patterns, topography, street access, zoning, and more. Important components include:
- Competition: It’s critical to know what’s already available in the marketplace. The report should include a review of the square footage, age, location, unit sizes, street rates, features, occupancy rates, etc., of the existing self-storage facilities. It should also provide an analysis of projects under construction and any developments in the planning stages.
- Demographics: What does the customer base look like? What’s the average income per capita and household? Knowing these and other key statistics answers will help you determine what to build and in what quantity (your unit mix).
- Demand: There are some markets reaching saturation with self-storage, so it’s critical that your feasibility report demonstrate demand as well as the type and size of space the market appears to favor. For example, it might lack climate-controlled units, large commercial units or vehicle storage. This data should be addressed within the scope of the study.
Weighing Report Quality
Once you get your self-storage feasibility report, you should have a wealth of information to absorb. But how will you know if the study meets your needs?
First, understand how the market area is defined. Did the consultant draw a one-, two- or three-mile radius around the target site, or did he use drive times? If the former, his conclusions aren’t necessarily valid. I’ll give you an example.
My hometown is a border city separated from the state by a river. If a consultant used a radius to define the market area for my downtown projects, it would be a big mistake. That river is like a wall in most cases. Few people are going to drive across a toll bridge to rent a self-storage unit. So, when examining the market area in your feasibility report, check to see if there’s a physical barrier like river, major expressway, airport, etc., that might deter customers from finding or renting at your location. Your consultant should have accounted for it.
Also, look closely at the consultant’s assumptions. What is he presuming to be true about the market? For example, has he assumed that every existing self-storage owner in the area who has the ability to expand has already done so? If so, he could he be missing potential future supply, which could certainly impact the performance of your project. In fact, see if the consultant will provide assumptions on how fast your facility will lease up.
Make sure the person completing the report actually traveled to the subject property and didn’t just use online resources and national averages to compile the data. He should drill down and know the local area, or at least the state.
Finally, how did the consultant determine the amount of self-storage demand in your desired market? The person I often hire for my feasibility reports uses three methods: square feet per person, square feet per household and capture ratio, which is a percentage of customers the project could gain. He analyzes and compares each to establish an overall demand number or range. I might challenge some of his assumptions, but the methodology is there. I can see it. I yield to his conclusions most of the time.
A Few Last Things to Know
Taking all this into consideration, it’s important to understand that conducting a self-storage feasibility study is sometimes more art than science. The reports aren’t always exact, but they’re usually a good predictor of how much more space a market can accommodate.
Also, the better the report, the more data you’ll have to make an informed decision. Don’t be cheap and order the least expensive option. If you’re going to spend a few million dollars on your self-storage project, invest in a quality study. In any case, you may not have a choice. Some banks want to see pro forma statements from the person completing the feasibility report. Find out if you’re going to need that and make sure it’s within the consultant’s scope of work.
Again, we’re fortunate in this industry to be able to determine supply and demand fairly and accurately. Never develop new storage space without having a good report that addresses the above. Self-storage offers rewards as a business and a real estate play. The accuracy of feasibility studies is a huge benefit other sectors don’t enjoy, so take advantage of it before starting your next project.
Mark Helm is a commercial real estate agent and self-storage investor. He began working with real estate investment trusts in the mid-1990s to locate and purchase self-storage properties before striking out on his own. He’s the author of “Creating Wealth Through Self-Storage” and the creator of “Storage World Analyzer,” a cloud-based, financial-analysis software tool designed to help self-storage operators and investors evaluate potential real estate acquisitions or development projects. To reach him, e-mail firstname.lastname@example.org.