ISS BLOG – Busting the Myth: Why Square Feet Per Capita Doesn’t Really Matter in Self-Storage

In the self-storage industry, we often talk about square feet per capita as being a key indicator of supply in a specific market. You may even have relied on this metric when gauging project feasibility. While it’s a commonly used number, the author finds it to be invalid and misapplied. Find out why and the gauge he suggests using instead.

May 17, 2024

5 Min Read

With this article, I declare, once and for all: Square feet per capita doesn’t matter in the self-storage industry! And, yes, I’m sure—100%. I’ll prove it, too. 

Square feet per capita is commonly used to indicate the amount of self-storage space available in a specific market. When I first entered this industry in 2000, I heard very successful, brilliant, entrepreneurial people comment on project feasibility by saying something like “Well, as long as you’re under 5 square feet per capita, you’ll be fine.” I asked why and how that made sense? The best answer I ever got was, “That’s the way it is. Over 5 square feet, you’re oversupplied. Under, you’re good.” 

Those individuals were trying to explain something they didn’t fully understand yet: self-storage demand. They picked a number that made sense but misapplied it. In reality, this metric has no useful basis in gauging market health and should not be thrown around like it matters. Even today, I hear people in the business say things along the lines of “We like this market a lot, even though it’s saturated with supply—like 8 square feet per capita,” or “This market is undersupplied, with only 5 square feet per capita.” I always tell them the absolute, earnest truth: Square feet per capita doesn’t matter. 

Basic Economics 

Before you fire off an email telling me that I’m wrong, please know this: I don’t make the rules of basic economics, I just live with them like you. Self-storage is awesome, but it isn’t some unique outfit that doesn’t respond to pressures or preferences in the marketplace. In any market, for any good or service, price is an indicator of the relationship between supply and demand. And price is what matters. 

When you fill up your car with gas, you don’t pay attention to the number of barrels of oil OPEC is producing, nor do you tally up how much gas other vehicles are using. You look at the price. Why? Because that’s what matters. 

Storage doesn’t veer from this basic economic principle. When supply increases and demand remains the same, prices go down. It’s like this on everything you buy, in every defined market. It won’t change, ever. Shortage of toilet paper? Higher prices. Too much money floating around? Lower buying power of the dollar. Too much storage? Declining rents. 

Self-storage is very local, making it nearly impossible to apply any broad economic measurement of supply when evaluating an individual market. There isn’t a single statistic that we can use as a benchmark for determining over or undersupply. 

Our industry has reported total supply in broad markets in various ways, either to describe the nation as a whole, a particular state or a large metropolitan area; but those statistics aren’t useful in evaluating the potential of a market to absorb additional storage. Why? Because each of our stores competes in a small, localized micro-market. Total supply tells us nothing meaningful if we don’t know how it has been absorbed. 

Enter demand. In every unique self-storage market, there’s a consistent churn of demand brought about by common life events experienced by customers: death, birth, divorce, relocation, renovation, businesses launch or dissolution, sickness, natural disaster, etc. Two markets may be just a couple miles apart but have radically different demand profiles depending on income, crime, employment, etc., among other things. To successfully evaluate an area, we must assess supply and demand. One without the other is utterly and totally useless.

Demand Varies Across Markets 

More sunscreen is stocked on the shelves in Miami, Florida, than in Madison, Wisconsin. For sure, there are more sunscreen bottles per capita in Miami than in Madison. If the sunscreen industry applied basic economics the way many in the self-storage industry do, they’d say, “Well, that Miami market is way oversupplied with sunscreen. Look at that per-capita number! Wow! We shouldn’t sell in Miami. Instead, we should focus on Madison.” That logic is faulty. 

Self-storage demand falls into two categories: unmet (new), which is regular market churn, and satisfied, which is occupied supply. Developers should be most concerned with assessing, measuring and forecasting unmet demand. 

The average number of move-ins a specific market sees over a period of time is critical when forecasting future demand. It’s important to know actual household usage so we can understand whether the population base is stable, growing or contracting, which impacts the prospect of new demand moving forward. For example, in a recent feasibility study I conducted, I determined that the target property’s competitors move in 2,400 tenants annually. The market is stable, not adding many new households each year, so I conclude that new demand for storage will also be stable. If that market was growing, I would instead determine how much additional demand each new household would bring.  

Some short-term events can also impact demand. COVID-19 created a boost as people cleaned out their garages, built decks, remodeled rooms or moved in with other family members. Higher death rates also create demand spikes. Now, we’ve come back down to the long-term trend line. The pandemic years were outliers for our industry, statistically speaking. 

What Matters Most 

So, what really matters when determining self-storage supply and demand? Rents and occupancy! Both give us insight to market dynamics. 

Occupancy tells us how much of the existing supply has already been absorbed. Combined with information such as average move-ins, we can make sound forecasts on how much additional supply a market can absorb without having detrimental impact on prevailing rental rates. Strong rents and high occupancy are good. Declining rents and occupancy? Bad. It doesn’t matter how many square feet per capita there are in either scenario. 

As a self-storage owner, developer, analyst and investor, I don’t care if there are 2 square feet per capita in a market or 30. When I evaluate the viability of a prospective investment, I only care about rents and occupancy. It’s the relationship between supply and demand that matters, not one or the other independently. Only the regular churn of new demand will fill vacant units. Using an irrelevant metric is just folly. 

To all the brilliant self-storage analysts, lenders and investors out there, whom I call friends, I beseech you: Quit using square feet per capita as a measuring stick. It makes you look bad! Instead, focus on rental rates and occupancy, and you’ll be able to put together better deals in a future where square feet per capita is dead. 

Benjamin Burkhart owns StorageStudy.com, a self-storage feasibility and development consulting firm based in Richmond, Virginia. Contact him at [email protected]. 

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