As self-storage facility managers, we wear many hats. We see the good and bad. We help people and businesses in our neighborhoods solve some of their problems, often during stressful times in their lives. For some of us, the most enjoyable part of the job is simply talking with kind and friendly customers. We like keeping our facilities clean and in great condition for them. Others of us love that we’re running a multi-million-dollar business, almost on our own! We get to apply what we learned in economics class on a daily basis and watch it work.
Like any profession, self-storage management involves challenges. The lien process is probably the least fun part of the job—nobody enjoys selling tenants’ belongings. Collection calls aren’t particularly enjoyable, but many managers don’t mind it because they’re helping their customers avoid future late fees by providing friendly reminders. The only other job complaint I hear from time to time is managers get really nervous when increasing existing tenants’ rental rates.
The perspective we have when analyzing and setting rates at our self-storage stores is what determines our success. If we believe in ourselves and our facilities, we understand the value we’re providing and can confidently sell space at reasonable prices.
Setting Street Rates
To determine what you should be asking new renters to pay monthly for their units, consider the following:
Competition. How do competitors’ units, amenities, services and location compare to yours? If you were renting space, would you consider paying more to rent at your store than the other facilities in your area?
Occupancy. How much demand is there for each particular unit type? If your large spaces are always full, push the street rates on those. If you have more 5-by-10s than you could ever imagine renting, consider dropping that rate, offering a move-in special or converting them to 10-by-10s.
Not sure how much to increase rates? Try just a few dollars at a time, and keep adjusting every two weeks or month until you start losing occupancy. Your software may have a report that tells you how many days it’s been since you rented a particular size/type unit. If you notice a unit type that’s not renting and you have several available, it may be time to drop the price.
Objections. When you get to the point that rates are too high, you’ll know! You’ll hear it from your customers, or your Web reservations will start to decrease. Pay attention to your normal activity, and listen to your current and potential customers. They’ll be your guide.
Be prepared with responses to the potential “Whoa, that’s too expensive!” comments from prospective tenants. When countering price complaints, explain the great security features at your property that come with their lease. Let them know what you do to keep the property clean and dry, as well as cool or warm in off seasons. Think about other unit options for them as well. Maybe a smaller unit or an interior space without temperature control will be more palatable to tenants who display high sensitivity to rates.
Something else to consider is the expected length of stay for a tenant. If a customer is going to rent for only two months—January and February—there’s a good chance you won’t be able to rent to someone else at a higher rate during their stay. Give him a deal if you need to, but only if you need to!
Adjusting Rates for Existing Tenants
Unfortunately, the cost of just about everything in our world goes up with time, including health insurance, utilities, repairs and maintenance, and manager salaries. If a storage owner wants to continue making the same profit every year, he’ll need to increase rates.
Store managers can help by sticking to a schedule that raises rates on existing tenants at least annually. If your management software includes a system for automating rate increases, use it. Set increases to occur regularly based on move-in date. Send tenants a letter notifying them of their firstrate increase after nine months and then every 12 months after that. Many large operators are more aggressive, raising tenant rates every nine months.
How much should the rate increase be? We usually raise tenant rates between 6 percent and 8 percent annually, depending on the occupancy of the unit type as well as the gap between the tenant and street rates. If a customer got a great deal at move-in and you’ve increased street rates significantly due to high occupancy since, you may want to manually push his rate higher to close the gap. If he chooses to move out, you can rent the unit to someone at full street rate right away if demand is high. Consider holding off on raising a tenant’s rate, however, if he’s already paying 20 percent or more above street rate.
Try to take the personal aspect out of rate increases; treat it as a process that’s computer-generated. Sometimes we try to predict the reactions our tenants will have when they read their rate is going up, but we’re rarely right. All the data we’ve studied shows that less than 2 percent of self-storage tenants will move out due to a rate increase.
Similar to street-rate pricing, there are ways to overcome tenant objections to rate hikes. These include explaining the increased costs you’ve incurred to run the facility, pointing out they’re still receiving a discount (if they’re below your current street rates) and noting any physical improvements made to your property. You can also meet them halfway—agree to a $4 rate increase instead of $8. Another strategy is to push back the increase for a month or two, if you need to prevent the tenant from moving out. Usually just showing some empathy and offering help, even if it’s just a little gesture, goes a long way.
Remember, self-storage tenants tend to rent at locations that are convenient to them and managed by people they trust. Creating good rapport with new and existing tenants through conversation is the best way to help your property succeed.
Alyssa Quill is an owner of Storage Asset Management Inc., a third-party management and consulting company that oversees more than 50 self-storage facilities across the East Coast. To reach her, call 717.779.0044; e-mail email@example.com; visit www.storageassetmanagement.com.