Finding Your Rental-Rate Rhythm: Setting Prices for Your New and Existing Self-Storage Customers

Revenue is the lifeblood of any self-storage facility, and an operator’s ability to maximize and manage it plays a critical role in the health of the business. Most income in this industry originates as rent from tenants. The more you charge and the more units you fill, the more money you make. If you can avoid diverting too much of your cash to expenses, your operation will be profitable. It’s an extremely simple concept.

Yet there are still self-storage operators who struggle with setting their unit prices for new and existing customers, which undermines their business, according to Rick Beal, cofounder of Atomic Storage Group, a self-storage management firm that oversees more than 120 facilities nationwide. In fact, he sees it all the time.

Pricing affects profits. Though earnings are only part of the revenue-management equation, which must factor in money spent as well as received, they’re crucial. And even small changes can make a significant impact, Beal says.

Let’s look at strategies for managing self-storage unit pricing, both street rates for new customers and increases for existing tenants. I’ve included observations and advice from several industry experts.

Digital vs. Manual

The big rental-rate question on the minds of most self-storage operators these days is whether they should adjust their pricing manually or allow technology to do it. Bob Copper, owner of consulting and management firm Self Storage 101 and Copper Storage Management (CSM), favors relying on software, as manual pricing tends to be too subjective. For example, an operator might offer a lower rate to a “special customer” or a tenant who’s struggling financially. A manual process might even be influenced by racism, sexism and ageism.

“The tech-driven systems remove a lot of those issues. Either everyone gets a raise, or no one gets a raise—no picking and choosing,” Copper says.

Furthermore, digital pricing is scheduled and consistent. It depends on data-driven decisions rather than those based on emotion or relationships, says Gary Edmonds, who owns 22 self-storage facilities in Illinois, Iowa, Ohio, Minnesota and Wisconsin and manages 25 more for other owners.

There are many companies in the industry that offer software and other tools designed to help self-storage operators set their unit pricing. In fact, advancements in artificial intelligence are providing a critical edge, according to Bret Schobel, director of revenue management for Storage Asset Management, which oversees nearly 600 facilities nationwide.

“The rising costs of taxes, utilities and insurance are making it more important than ever to manage your incoming and existing rates with a correct pulse on the market,” Schobel says. “A failure to do so could heavily minimize the profit potential of your asset.”

If manual pricing is still your method, don’t fret. With the right strategy, it’s still viable. For example, SAM recently adjusted rates by hand for several facilities in areas that were hit hard by natural disasters. “One of the pros of manual pricing is the ability to quickly react to ground-level changes at your store or in your market,” Schobel says.

Street-Rate Savvy

When self-storage operators talk about rents, many focus on street rates, the advertised prices for new customers. These have recently dropped in many markets. Key factors in this decline include high interest rates, weak home sales and shifts in moving patterns. As of May 2024, the national average same-store street rate fell 4.5% compared with the same period a year earlier, according to a July 2024 report from data provider Yardi Matrix.

To counteract dampened demand and depressed street rates, SAM has been aggressively promoting specials for new customers, such as first month free or the first three months at 50% off, while keeping street rates relatively high. Once the promotional rate ends, in-place rates sit even higher than market rates.

To set street rates, first determine your facility’s position in the self-storage market, Edmonds advises. Is it an older site that sits two blocks from a newer one or the new kid on the block? Does it offer amenities and services that are unique in the area? If so, you may be able to charge more.

Beal agrees that market differentiators play an important role. Does your facility offer smart entry and locks, high-quality security or regular pest control? “Considering your unique offerings can help you identify additional value that you can provide to attract more customers at a higher rate,” he says.

You must also decide whether you want your rates to be at, above or below the market average. “That can vary based on facility occupancy or even unit-type occupancy. And it can vary often,” Edmonds says.

Beal adds that it’s critical to assess storage demand in your region. For example, if you’re consistently renting out all your 10-by-10 units, this might justify higher rates for that size.

Setting appropriate street rates will maximize your business income and even boost property value. “And sometimes maximizing the income means having to lower your street rates when market conditions deteriorate due to various factors. Some rent is better than the unit sitting empty for a long period of time,” says Kraig Haviland, cofounder of Haviland Storage Services, a consulting firm that also manages 13 properties in five states.

Furthermore, your street rates can affect not only your facility but the entire self-storage market. “Other properties will be looking at what you’re charging and will base their rates according to their property’s age, condition, occupancy and amenities as compared to yours,” Haviland says. “If yours is the shiniest nickel in the area, then you should be the rate leader because enough customers will perceive extra value at your location and will be willing to pay at least 10% more.”

Rent Raises for Current Customers

Another aspect of rate management you must consider is raising rates for existing self-storage tenants. This is a delicate process, as you can easily bump them too little or too much.

“Raising the rent for existing customers is more art than science,” says Haviland, who managed rate increases at San Diego Self Storage for 15 years before rejoining his family business. When going through the price-setting process, his goal was always to avoid losing tenants. “But we also knew customers were inclined to stay at a facility where they had enjoyed a positive storage experience rather than go through the hassle of moving to another,” he says.

To ease the blow for his customers, Haviland only pushed increases annually. “Our company benefited from our competitors who did rent increases multiple times per year, because those raises were too frequent for many customers; they got fed up and looked for alternative solutions,” he says.

Beal says there’s “no magic formula” for raising rates on existing tenants. Schobel says you shouldn’t hesitate to increase, even if it puts your renters’ rates above street rates. “Remember that your street rate should be dynamic, so that what might seem like an aggressive increase today could become a bargain tomorrow,” Schobel adds.

At facilities operated by CSM, rate increases for existing customers happen every nine months, Copper notes. These follow facility-by-facility and market-by-market analyses, along with studies of occupancy levels and rate trends. Whatever the data shows, CSM imposes “very minimal” rate hikes on existing tenants so they’re less likely to vacate their units when the bigger bills arrive.

Regardless of how often you bump up rates, “it’s important to always clearly communicate your pricing to your customers, including any fees or additional charges. It’ll help build trust and establish you as a reliable business,” notes Beal.

Economic Occupancy

If you’ve been in the self-storage business long enough, you know about economic occupancy. It’s the share of total potential income being collected from your units, shown as a percentage. “It takes into account the maximum market rate that could be charged for each space vs. the amount of rent actually being collected,” wrote Scott Krone, founder of Coda Management Group, in a 2022 article published by Inside Self-Storage.

For the sake of simplicity, let’s say you have 100 self-storage units, and they all rent for the current street rate, which is $100 per month. If you rent every unit at full price, your facility is at 100% economic occupancy. But that’s rare in this industry. Vacancies and discounts are nearly always in play. So, now let’s say 10 of your units are vacant, and 10 have been discounted by 20%. Instead of generating $10K per month, your facility now earns $8,800 per month. That drops economic occupancy to 88%.

But what happens when street rates outpace your pricing for current tenants? It significantly changes the picture, as your units are no longer generating as much money as they could. Economic occupancy gets turned on its ear.

“In an environment where rental rates are increasing, it’s hard to maintain economic occupancy,” Edmonds says. “When street rates are falling, economic occupancy can look a lot better because you have occupied units above the current market rate. I do not place a lot of emphasis on economic occupancy since it is heavily impacted by outside factors.”

A Positive Outlook? It Depends

Overall, this year’s self-storage rental rates appear to be more solid than they were in 2023 when post-pandemic demand began to slip, Edmonds says. But there seems to be a decent amount of variation between markets, he adds.

SAM is also seeing market-to-market pricing fluctuations. In most communities the company serves, rates have gone through normal seasonal shifts, growing over last year. But in the Southeast, it continues to notice softening, with some areas “still trending backward during traditional high-rental months,” Schobel says.

“Last year, rates were a bloodbath,” Beal says. “The REITs directly led this slaughter, affecting every self-storage operator in their market. This year, we’re seeing a slight increase in rates, and hopefully, they will begin to rise.”

A report released earlier this year by commercial real estate services provider Marcus & Millichap neatly put this year’s rate picture into perspective. “Rents will be the primary plane of competition among storage operators this year. Many major firms are employing dynamic pricing models that maneuver asking rates to more favorably meet market demand, while in-place rents hold steady. This will aid revenue gains for top operators, despite declining street rates, and put smaller firms at a disadvantage.”

John Egan is an Austin, Texas-based freelance writer and content-marketing strategist who specializes in real estate, personal finance, and health and wellness. He’s the former editor-in-chief at SpareFoot (now Storable) and the author of “The Stripped-Down Guide to Content Marketing.” His work has been published by outlets such as Bankrate, Forbes Advisor, Experian, Investopedia, Nareit, Urban Land magazine, U.S. News & World Report and Wealth Management. To contact him, visit https://johnegan.net.