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Self-Storage Occupancy: Understanding the 3 Types and How They Reflect Facility Performance

“Occupancy” is one of the most commonly cited self-storage performance metrics, yet it provides an incomplete picture, especially if you don’t know which type of occupancy is being quoted. In fact, there are three kinds: physical, square foot and economic. Here’s how they differ, how they correlate and why it’s important to understand them all.

Scott Krone

August 13, 2022

6 Min Read
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A very common measure of performance in the self-storage industry is facility occupancy, but not everyone understands that there are different kinds or how they relate to one another. In this article, I’ll explain the three types of occupancy—physical, square foot and economic—as well as why it’s important to understand and compare them.

3 Types of Occupancy

Whether you’re making projections for a self-storage development, assessing a potential acquisition or analyzing the performance of an existing facility, it helps to understand site occupancy and how it’s measured. Here’s an overview of the three types and how they intertwine.

Physical occupancy. This is the number of occupied units at a self-storage property, expressed as a percentage. This common metric provides a quick snapshot. If your facility has 100 units and 75 of them are filled, you’re at 75% physical occupancy. But because units come in various sizes, this number doesn’t provide an entirely accurate picture of vacant vs. occupied space. That’s where square-foot occupancy comes in.

Square-foot occupancy. This is the number of occupied, rentable square feet at a facility, also expressed as a percentage. Let’s recycle the example from above and say we have 100 self-storage units. Half of them are 10x10s and the other half are 5x10s. That makes our total inventory 6,250 square feet. We know 75 units are filled, but which ones? Let’s say 40 are 10x10s (4,000 square feet) and 35 are 5x5s (875 square feet). That makes our square-foot occupancy 78% (4875 / 6250 = .78), which is higher than our physical occupancy.

Still, this doesn’t tell us anything about the revenue being generated by our available space. For that, we have to look at economic occupancy.

Economic occupancy. This is the percentage of gross potential income being received from available self-storage units. It takes into account the maximum market rate that could be charged for each space vs. the amount of rent actually being collected.

Coming back to our example, let’s say we have 50 10x10 units that rent for $100 each and 50 5x5 units that rent for $50 each. Our total revenue potential, if we rent every single unit at full price, is $7,500 per month. However, this rarely happens. There’s nearly always some vacancy; plus, it’s common in self-storage to offer some kind of discount or promotion to entice move-ins, such as first month free or 25% off the first three months.

Any unit we rent, regardless of price, increases our physical or square-foot occupancy. A filled unit is a filled unit. It’s when we look at revenue collected that we understand lost potential. A unit that was rented for free for the first month counts toward our physical and square-foot occupancy but doesn’t boost economic occupancy at all—until the tenant starts paying rent in month two. The same is true when you have tenants who aren’t paying rent at all due to delinquency or when you remove units from inventory for internal use. Any time you don’t collect market rate on a space, it negatively impacts your economic occupancy.

Let’s return to our example. We have 100 units. We’ve rented 40 of our 50 10x10s, which are supposed to sell for $100 per month, and 35 of our 50 5x5s, which sell for $50 per month. The total economic potential of this facility, when completely full and at market rate, is $7,500. Our physical occupancy is 75%, while our square-foot occupancy is 78%. But let’s say we rented 15 of our 10x10s at 25% off for the first three months. What’s our economic occupancy? We’re collecting:

  • Full price on 25 10x10s = $2,500/month

  • Discounted price ($75) on 15 10x10s = $1,125/month

  • Full price on 35 5x5s = $1,750/month

  • Monthly total = $5,375

In this case, our economic occupancy is 72% ($5,375 / $7,500), which is lower than our two other occupancy types. On the other hand, if we rented all 75 of those units at full price, our economic occupancy would be 77%.

Putting Them All Together

When examining a self-storage property, all three occupancy types can be expressed together to provide a quick assessment. For example, you might say, “The building has 75,000 net rentable square feet in 500 units. In all, 90% are rented, with an economic occupancy of 80%.” This provides a lender or investor a concise snapshot of how the facility is doing. In this scenario, it illustrates that there are solid rentals with room to improve performance.

Alternatively, if your building has 45,000 rentable square in 500 units, but physical occupancy is 50% and economic occupancy is at 30%, there are problems to address. First and foremost, there are 55,000 square feet of lost opportunity. These lower numbers could indicate the facility is in lease-up, or perhaps there’s just tremendous runway to add revenue.

Impact on Income

Now that we have a better understanding of the three types of self-storage occupancy and how they relate, let’s look at a real-world case study of how these metrics relate to income. The property in question is a class-A facility that was converted from a commercial building. During lease-up, we completely rented the 10x20 units, but our 10x10 rentals lagged. When customers came looking for larger units, we attempted to rent them two of the smaller ones instead; however, no one wanted to do that because the cost per square foot was higher.

In the end, we decided to convert 20 of our 10x10 units into 10 10x20s. This dropped our total unit count by 10, which impacted our physical and square-foot occupancy. We also increased the price of our 10x20s, thereby increasing our gross potential revenue and shifting our economic occupancy.

Removing one interior wall in 10 units altered our occupancy in all three categories. As a result, we had to contact our lender and investors to explain why the physical unit count dropped, the square footage remained the same and the economic occupancy increased. Without knowing the story, they likely would’ve thought the monthly reports were inaccurate.

This is one of the reasons I like self-storage: We have the ability to change unit configurations to assist rental performance. Keep in mind, this approach may be easier in some facilities than others. Still, understanding each occupancy type is critical in assessing value and knowing how much revenue a facility can yield.

A Full Picture

All three types of occupancy tell you something about a self-storage property, but economic occupancy is the most significant of these metrics when evaluating an existing business. If the number is low, look to see if you can increase rental rates or improve collections. Then consider whether there’s an opportunity to increase square footage. If there is, determine the unit sizes the market really needs.

Ultimately, it’s important to understanding what each type of occupancy reflects, how it’s impacted and how they correlate. Knowing all three provides a full picture of performance and insight into the nuts and bolts of any self-storage operation.

Scott Krone is founder of Coda Management Group, which specializes in managing real estate assets including self-storage as well as multi-family, retail, commercial warehouses and multi-use flex spaces. Launched in 2012, the company has more than $70 million invested in self-storage. In 2020, Krone co-founded One Stop Self Storage, which operates facilities across the Midwest. To reach him, call 847.272.7775, Ext. 1; email [email protected].

About the Author(s)

Scott Krone

Founder, Coda Management Group

Scott Krone is founder of Coda Management Group, which specializes in managing real estate assets including self-storage as well as multi-family, retail, commercial warehouses and multi-use flex spaces. Launched in 2012, the company has more than $70 million invested in self-storage. In 2020, Krone co-founded One Stop Self Storage, which operates facilities across the Midwest. To reach him, call 847.272.7775, Ext. 1; email [email protected].

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