This is Part 7 of a multi-part series on investing in Self Storage assets.
In previous posts, I have written about the various self storage topics including rental rates and expenses, holding up during recessions and growth patterns.
This post will cover site selection which can be very important to the success of the asset.
There are several factors to consider when selecting a site for self storage. You want good visibility and easy access for customers. The density of the population within a few miles of the site needs to be considered. What’s the growth rate in the area? What’s the current storage saturation level or competition? Is there land available? What’s the zoning situation? Are there good traffic patterns?
A growth area, for example, generally will produce a much faster rent up, and high ratios of multi-family residences will create a demand for smaller units, and smaller units generally pay a higher return on the dollar invested. A location near the center of a dense urban area, preferably on a major street, is ideal. A freeway location is somewhat less desirable than a major street that passes through the neighborhood the facility is intended to serve.
The most common way to determine answers to all these questions is through a thorough market study.
In order for the market study to be realistic, you have to start with a review of the demographics which includes census data in order to obtain information about a one, three and five mile radius surrounding the proposed site. This information should include current population, anticipated growth, the population mix (renter/owner, multi/single family) and average income. Several industry vendors provide these types of demographic packages called feasibility studies.
Competitors (both existing and planned) should be plotted on a map of the area. All existing competitors should be visited. This visit should include a conversation with managers to determine unit mix, rental rates and occupancy levels to calculate average rental rates and income of area facilities.
After the on-site visits, calculate the total number of square footage of self storage in the market area, as well as the number of individual units. Previously, saturation was thought to occur somewhere between 2-4 square feet of rentable space per person and depending upon the population, housing and commercial mix in the neighborhood. However, there is no real definition of market saturation as some sub-markets now have 8-10 square feet per capita; it definitely varies from one market area to another.
Communities that tend to absorb larger amounts of storage space are usually found in the Sunbelt area, where people have more opportunity to be outdoors and to own more recreational equipment. The type of housing (e.g. basement, enclosed garages, large homes with closets or no frills housing, military bases, condominiums and apartments, and the density of older housing which may not have adequate storage space) also has an impact on how much storage space the market will accommodate. Age of the population, mobility rate, employment status and income are other important measures.
The best way to compile all this information is to hire a firm to prepare a feasibility study on the specific site you are interested in.
Come back for more information on self storage, or set up a call with me to discuss how you can invest alongside me. Set up your call here.