A Quick Market-Evaluation Guide for Self-Storage DevelopersA Quick Market-Evaluation Guide for Self-Storage Developers

When selecting a location for their next potential project, a self-storage developer must proceed with caution and diligence. Site selection requires thorough, data-driven evaluation to avoid market oversaturation and confirm the potential for long-term profitability. Following are several key areas of analysis to help determine whether an area has true revenue potential. Research these carefully before making a commitment to purchase land or build a facility.

Self-Storage Market Supply and Demand

Though not everyone agrees on the value of this metric, square feet per capita is often used as an indicator of self-storage supply in a market, representing the average amount of space available per person. If the number is less than seven, the area is considered undersupplied with opportunity for new development. Anything above that, and the market may be saturated, making it difficult for new and pre-existing facilities to reach profitable occupancy.

Just keep in mind that this is a rule of thumb. You’ll also want to examine local demographics, economic conditions and demand drivers for a more nuanced understanding of the market. Low square feet per capita is a positive sign, but this metric alone doesn’t guarantee success. You must combine it with other factors to paint a complete picture of the area’s potential.

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The vacancy rate at existing self-storage competitors is another potential gauge of how well demand matches existing supply. A rate below 10% typically indicates strong demand, while a higher rate may indicate obstacles to entry. If the rate is low, it’s important to investigate why, as it could be due to seasonal demand or population shifts. A high vacancy rate should always prompt caution. Is it due to oversupply, a weak local economy or other factors?

Population Density and Growth

Population density is another key item to evaluate when choosing a site for self-storage development. You’re looking for a market with strong demand and revenue potential, and high density is often positive. In urban areas, for example, living spaces tend to be smaller, with limited garages, attics and basements. This lack of space drives storage demand, almost guaranteeing a steady flow of potential customers. High demand also means an opportunity to charge higher rental rates due to unit scarcity.

It's important to analyze current and projected population trends in your desired self-storage market, so you can anticipate future demand. For example, does the area expect to see additional housing developments? That could mean significant population growth and a potential for industry expansion.

Also, investigate the types of population growth in the area. Beyond residential expansion, could there be a workforce influx due to corporate relocation or the launch of a new business? The development of a new factory or technology hub will draw new workers, all of whom need places to live and store belongings. Are there senior-living facilities being built that might lure retirees? What about recreational attractions that could bring tourism? All of these demographic factors impact the amount of self-storage a market can support.

Self-Storage Rental Rates and Revenue Potential

Rental rates at existing self-storage facilities are key indicators of a market’s revenue potential, making them essential for determining whether your proposed development can generate sustainable income. Study the average rates for various unit sizes in the area as well as price trends over time. This will help you understand what consumers are willing to pay, so you can set a competitive pricing strategy.

Local rent rates also provide insight to seasonal self-storage trends and demand shifts. For example, if they’re consistently higher than national averages, it suggests strong demand and the potential for higher pricing. Conversely, lower rates suggest price sensitivity. In this case, your project may need differentiators like climate control or specialty storage to justify higher rents. Understanding these trends helps you identify rate-growth opportunities, informing your short- and long-term financial planning.

Additional Site-Selection Factors

While the above factors form the foundation of a successful self-storage market evaluation, additional information can further refine your understanding of the local landscape. Pay attention to:

Incoming developments. Monitor any self-storage facilities that are under construction or in the approval stages. This will help you anticipate future competition and avoid markets that may become oversaturated.

Development moratoriums. Some municipalities have imposed restrictions on self-storage building, limiting new entrants, reducing competition and allowing operators to benefit from limited supply. Pay attention to existing and upcoming legislation in your target state. If one city adopts a ban or strict development guidelines, others may follow suit.

City cooperation. The local regulatory environment can impact self-storage project timeline and costs. Cities with a streamlined permitting process are more favorable, while restrictive zoning may require additional time and resources to navigate.

Large-operator presence. The self-storage real estate investment trusts and other large industry players often dominate competitive markets, leveraging their brand recognition, operational efficiency and economies of scale. Be aware of any such operators in your target market, as your facility may need to differentiate itself to attract customers.

Lease-up to stabilization. The time it takes for a new self-storage facility to lease up and reach a steady occupancy impacts cash flow and revenue. Markets with quick stabilization indicate strong demand, while longer timelines may suggest slower growth.

Climate-controlled units. In areas with extreme weather, demand for this product may be high, offering a niche opportunity. Pay attention to the amount of traditional vs. climate-controlled storage in the market, and in what unit sizes. Even a market with lots of self-storage may be ripe for new development if it needs more product of this type.

Vehicle storage. The increase in boat and RV ownership has created opportunities for specialized storage. Not only can this product fulfill customer needs, it may allow you to develop in an area that might otherwise be considered oversupplied.

A data-driven approach to market evaluation is the cornerstone of successful self-storage development. By focusing on the above criteria, you can make informed decisions. Insight to factors such as supply and demand, population growth and density, rental rates, municipal regulations, and others will help you refine your site-selection strategy. This comprehensive approach reduces risk and will position your new facility for sustainable profitability in a growing industry.

Alexander Clark is a managing partner and feasibility consultant, and Tyler Peterson is a senior managing director of acquisitions at Citadel Development Partners, which specializes in self-storage and light-industrial projects. Clark has 13 years of experience in the self-storage industry as a certified general appraiser. He’s completed more than 150 feasibility studies nationwide, contributing to the successful development of numerous projects while helping clients achieve more than $65 million in total project value. Peterson has five years of real estate experience in acquisitions, dispositions and investment strategies. He’s closed more than $160 million in self-storage and industrial transactions across 60-plus deals in 17 states. He owns multiple single-tenant, net-lease and self-storage assets with a total portfolio value of nearly $5 million. To reach the authors, email [email protected] or [email protected].