By Tracy Sells
For many independent self-storage operators, the real estate investment trusts (REITs) present challenges as well as opportunities. The REITs account for roughly 10 percent of the industry, and while that’s a relatively small number, there’s no denying they have great influence on other operators and the business as a whole. They’ll continue to grow and likely increase their share of the market, albeit slowly.
I work for The William Warren Group (WWG), which operates under the StorQuest Self Storage brand. Our company has 120 facilities and is still growing, yet we’re impacted by the REITs just like other small to mid-sized operators. By and large, we view that impact as positive. While there are certainly challenges, the REITs also bring many advantages to the table. Let’s look at the effect REITs have on smaller operators as well as some tips for independents to compete effectively in their markets.
Focus on Marketing
Competing for rentals in a market containing a REIT-owned facility is always a challenge. That property is only one of many in the REIT’s portfolio. If one out of 1,000 facilities realizes a loss, that deficit is mitigated by the 999 others that are turning a profit. If the facility is new and sets its prices below those of the competition to lease up, it has de minimis impact on the REIT portfolio’s net operating income, but it negatively impacts the bottom line of every other storage business in that market. That hit is harder on small to mid-sized operators.
The fact that the REITs can outspend my company and most every other operator on marketing doesn’t mean we can’t be just as effective with our programs. With more than 50 percent of new customers originating online, finding the right provider to help manage your website, efficiently manage pay-per-click (PPC) advertising and monitor your local-search program is as important as the ability to generate trackable results. In addition, effectively using low-cost social media tools and best practices can help you gain additional online presence while increasing your Google search placement and reducing your PPC spend.
Managing your online reputation is another key component to stacking up against the REITs. While spending only a fraction of what they invest in online marketing, WWG’s total social media user engagement, or Klout score, ranks higher than each of the REITs. While they have large marketing departments and advanced technology systems, there are many resources within our industry to help smaller operators run an online marketing program that’s every bit as effective as theirs.
Be Price Savvy
The REITs have sophisticated systems and talented experts dedicated to revenue management. They invest heavily in this area and are constantly monitoring and evaluating rates, sometimes making it hard for others to keep up with their ever-changing pricing models. This doesn’t have to be the case. Smaller operators can also be quite successful in their programs by using the tools or modules available in most management-software systems. Know what’s happening in your markets in terms of supply and demand, and monitor what your competitors are doing from a pricing standpoint.
It’s also important to get your managers on board with pricing changes. Owners often allow managers to dissuade them from raising rents because they’re fearful of potential backlash from existing tenants, or from potential customers who claim they’ve been quoted a better price from a competitor. It’s important for managers to understand the importance of revenue management and its effect on the business and buy into the concept. With the proper training and incentives, you’ll likely find your managers supportive of price increases. In the era of 90-plus percent occupancies, raising rental rates is one of the only means to realize growth.
Outshine on Service
We certainly can’t outspend the REITs, but we can outshine them. Our focus is on winning the consumer with service. We pamper our customers, communicate with them, play with them, make them laugh and make renting from us easy. We make them feel good. We don’t just give them a storage unit, we give them a better experience! This is a major piece of our operating strategy.
For many of the REITs, their three most important departments are revenue management, digital marketing and an in-house sales center. In contrast, our three most important departments are human resources, customer service and digital-experience management. If you hire the right people to run your stores, train them properly, give them the tools to be outstanding service representatives and create a culture that promotes a happy work environment, you’ll find that you too can outshine the REITs from a customer-service perspective.
Respect But Pivot
The REITs have done many great things for our industry. Among them, they’ve built first-class facilities in great locations, which has helped to enhance the visibility and reputation of self-storage for the consumer. All operators benefit from a positive perception of our business by the public. The REITs have also been leaders in technology and systems from which we have all learned.
At WWG, we view the REITs as our friends. While we admire and respect them, we don’t think you need to be a large operator to be successful. Following some REIT practices, however, such as revenue management and online marketing, are important and should be a focus of every operator, regardless of size.
Being smaller can help differentiate your business in a positive way. Smaller operators are closer to the customer and can use that to their advantage. They can create a better culture for their employees to foster an environment that promotes outstanding customer service. We can also take advantage of our nimbleness, making decisions more quickly than the REITs.
At WWG, we may not have the deep pockets of the REITs, but we have systems and technology that are just as effective as theirs. We have outstanding people at all levels of our organization and an entrepreneurial spirit that enables us to be creative, flexible and responsive.
As a smaller operator, you too can use industry tools to have effective online marketing and revenue-management programs, and you can use a third-party call center to have very successful systems for your facility. Combine all of this with greater attention to detail, a nimbler decision-making process and superior customer service to manage your facilities just as well as, if not better, than the REITs.Tracy Sells is director of strategic partnerships for The William Warren Group, a privately held real estate company that operates the StorQuest Self Storage brand. She’s responsible for the company’s third-party management program, including new business development and relationships with facility owners. Tracy has nearly 20 years of self-storage industry experience spanning development and operation. She’s also a board member of the Maryland Self Storage Association. For more information, call 310.451.2130 or visit www.williamwarren.com.