The first step in developing a self-storage business is to gain a solid understanding of your target market as well as your potential cash flow.
To determine the viability of your self-storage facility, first analyze the characteristics of the market. Consider the following:
- In urban areas (50,000 +), there is greater commercial use and higher renter-occupied housing
- Areas which have high use of self storage include military bases, university towns, and resorts
- Locales without basements or garages indicate higher usage of storage, particularly climate control
- The largest renter group is defined by people with lower incomes
- An average self storage market has:
- 5 to 8 sq ft of self storage per person in the northern United States
- 8 to 10 sq ft of self storage per person in southern states
- 4 sq ft of self storage per person in Canada
- If the market you are analyzing has less, consider it further as it is currently underserved.
To get a clear picture of the market's potential, analyze the other self-storage facilities in the area. Start by making a list of all the facilities in your desired market. Most facilities can easily be found on the internet. Utilize a street map program to pinpoint exactly where the facilities are located. Since self storage is a retail business, most renters will travel 3-5 miles to your site. Therefore, your analysis should have a radius of at least 5 miles around your target area.
Next, visit each site to gain further competitive data. Reference our competition evaluation form for easy note taking and analysis. Walk around each facility, talk to the manager, or rent a unit to get the information you need. Include these details in your investigation:
- Square footage - Make educated guesses on the square footage of each building. For example, large doors indicate a 10' x 10' unit, small doors indicate a 5' x 5'. Visit your city hall to view your competition's registered site plans.
- Rental rates - Get the rates for the most popular units, usually a 10'x 10' and 10'x 20'. If the facility also offers climate control, make sure to get the rate comparison on the same size unit in climate control.
- Occupancy rates - A manager may tell you outright how full they are, but this is rare. The only true method to determining occupancy rates is to walk around a facility and count locks. Each lock represents a rented unit. However, be aware of locks that are cheaply designed and look the same. These locks are typically used by the owner to prevent renters from leaving trash in the empty units.
- Rental and business policies - Each facility is managed differently, from operating hours to how units are rented. One facility may accept credit cards while the next one offers a special discount.
A common mistake is to only analyze one possible market. Don't limit yourself! By looking at a variety of markets you are able to determine which areas are underserved.
Now, take some time to fully analyze what you've uncovered.
Enter all data from your competitive analysis into a spreadsheet. This gives you a quick snapshot of the market(s) you wish to enter. You will begin to notice trends in building design, number of units, size of units, services, and amenities. Carefully consider generalities throughout the existing self-storage projects and determine the characteristics that seem essential and those that are optional. Determine the particular site features you would need to gain a competitive advantage.
Finally, identify factors that reveal strong demand potential. For instance, if the existing sites are over 90% rented, the market looks good in this area. Also, if you notice a trend of low rental rates, then you may need to consider a different locale.
If you desire a more comprehensive analysis, a feasibility or market study can be conducted by a third party. Feasibility studies are a good idea for larger projects and may be required by your financial institution. Ask each feasibility consultant if they have completed studies in your state because some are very localized in their knowledge of the business.
Once you have a solid understanding of your desired market(s), you are ready to determine its financial feasibility. Ask yourself the following questions:
- How much can I afford to pay for land?
- How much storage do I have to build to make money in my market?
- How much will the entire project cost?
- With my resources and parcel, is my project financially feasible?
To better understand your project's economic feasibility, utilize our investment calculator. Simply enter your best guesstimate on development costs, average rent in your market, and estimated square footage. Compare different rate structures to correlating land costs to determine the area with the most potential. If all signs point to profitability, proceed to finding the right piece of land for your future business!
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