Retail = Big Returns

April 1, 2004

3 Min Read
Retail = Big Returns

Although the implementation or management of a retail-supply business at your self-storage facility may seem like unfamiliar territory, if you put on your real estate-investor hat, many of the same measurement formulas would apply. Just as real estate has a language rich with formulae and definitions for calculating value, so does retail. In fact, the languages are similar. Personally, I found trade talk about cap rates or NOI daunting until I learned the lingo. This article will show you how using your own real estate language can provide the necessary skills to evaluate retail-supply opportunities.

Every storage operator with whom I have spoken is aware of the rentable square footage and occupancy rate at his property; and they all strive to maximize return on investment (ROI). Common sense would frown on an operator who ignored vacancies or reduced rental rates without good reason. The formulae of finance elegantly demonstrate that to earn a certain cap rate, you must generate a certain amount of revenue over a certain period of time.

If we were to look at the office area of a self-storage facility, what could be said if we applied the language of real estate, which judges things from the perspective of whether an asset generates a reasonable rate of return? We would look at the amount of square footage in the office area and the revenue generated. You might say that since a storage facility needs an office, the allocated space is already justified.

However, just as you are aware of market conditions and business opportunities in the industry, you should be aware of supply opportunities, too. Only then can you determine if you are maximizing your ROI. To this end, you should be aware the sales of moving/ packaging supplies made by truckrental firms, office-product superstores, parcel-service centers as well the selfstorage industry is fast approaching $750 millionthats three-quarters of a billon dollars! And there is nothing particularly unique about where these products are purchased except they are available where a customer needs them.

Having this information allows us to make comparisons. Many average-size self-storage facilities that implement retail-supply programs report selling anywhere from $12,000 to $24,000 annually in an 8-by-6-foot area, or 48 square feet of wall space. It should be noted the display area only has a footprint of less than 16 square feet. This translates into $250 to $500 of sales per square foot of wall space and represents $125 to $250 of profit.

These figures are based on an initial investment of $1,000. This means an ROI from 600 percent to 1,200 percentthats pretty good in terms of asset allocation. So, real estate people, should you allow this spacea potential source of revenueto stay vacant or underutilized?

Roy Katz is president of Supply Side, which distributes packaging as well as moving and storage supplies. The company has developed merchandising programs for many leading companies including Storage USA, the U.S. Postal Service, Kinkos and Mail Boxes Etc. For more information, call 800.284.7357 or 216.738.1200.

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