Managing your self-storage unit mix can be an effective way to positively impact facility value. Think of your property as a puzzle comprising various unit sizes and types, the solution to which can unlock hidden income. By learning how to correctly assemble the pieces, you’ll increase occupancy and boost revenue.
What does it mean to “manage” your mix? Depending on supply and demand in your market, some unit sizes will be more rentable and, therefore, profitable than others. Sometimes, smaller units should be combined to create larger units, or larger units should be split into smaller ones. Let’s look at two examples that illustrate why your unit mix is so critical and how you can adjust it to maximize occupancy, revenue and value.
Breaking Large Units Into Smaller
Let’s say you have a 500-unit facility that’s rarely more than 90 percent occupied. While reviewing the last six months of rental data, you discover that all units of less than 100 square feet are 100 percent occupied and your vacancies are mostly concentrated in your 10-by-20s.
Clearly, the demand in your market is for smaller units. In this scenario, you’ve likely turned away rentals because you didn’t have the desired inventory. To fix the issue, consider converting some of those 10-by-20s into smaller units (see the diagram below). Yes, it’s that simple!
Let’s say each 10-by-20 unit is priced at $120 per month. The current monthly rate for your 5-by-5s is $35, while 5-by-10s are set at $60. With the above unit mix, you can turn each 10-by-20 into four smaller units that will likely rent quickly due to market demand for those sizes. Combined, the new, smaller units will generate $165 per month in revenue, a 37.5 percent gain over the 10-by-20 price.
This approach also works for fully occupied properties. As soon as a large unit vacates, convert it to smaller sizes that are in high demand. If you do this throughout the year based on consumer demand, you’ll continue to positively impact revenue.
Combining Small Units to Make Larger
In this example, you have a 400-unit facility that never moves above 91 percent physical occupancy. After reviewing the last six months of data, you learn that your 5-by-10s are hovering at 45 percent. You have 75 of them. At the same time, your 10-by-10s and 10-by-20s are full and have been for a long time. Your mix is leaning heavily toward smaller units and you clearly have too many for your market.
In this case, you should convert your 5-by-10s into 10-by-10s and 10-by-20s. To figure out the best places to do that, look at your site map and physically walk the property. You’re looking for vacant and adjacent 5-by-5s and 5-by-10s that can be combined by removing the wall between. See the following diagram as an example. Changing smaller units into larger ones takes some legwork, but once you understand your unit mix, you can easily plan the conversions.
No Dollars vs. More Dollars
By taking the time to understand your self-storage unit mix and market dynamics, you’ll be able to successfully manage your inventory to meet changing demand. Figure out which unit sizes are desired by customers and convert your underperforming units accordingly. With a little planning and effort, you can alter your unit mix to increase physical occupancy. Remember, a vacant unit brings in no revenue; but higher occupancy equals more revenue, which in turn increases property value.
As a brokerage advisor for Investment Real Estate LLC (IRE), Justin Quinto is responsible for listings, sales, buyer representation, due diligence, financial analysis and feasibility studies in Connecticut, Massachusetts and New York. IRE brokers the sale of self-storage facilities in the Northeast and mid-Atlantic. For more information, call 860.936.1117; e-mail firstname.lastname@example.org; visit www.irellc.com.