I have been on a soap box for years, preaching that square feet of storage per person is not always the most accurate way to determine the viability of a self-storage project in a given trade area.
Many of you have suffered through my rants before.
No rant today.
Yes, it is an important metric. But I am seeing more and more feasibility reports that say something like, “According to national and state averages, this trade area is oversupplied using square feet of self-storage per person. But the competition is full, and there is no discounting going on, so it appears there is still some unmet demand.”
So recently in a Quickstart Academy Bootcamp I was running, I was asked what other metrics I use to decide if I want to go into a particular trade area.
I devised the usual suspects like income, population, and population growth.
But let me share with you some other metrics I use. Some of these are interesting and may seem out there, but let’s have some fun with it.
Of course, every trade area and the demographics in each trade area is unique. Still, when I am deciding between a couple of opportunities that I think could work or really trying to get my finger on the pulse of a trade area that is new to me, I also look at these metrics.
Rental Rates:
Nothing exciting here, but this is where I start.
Why?
Because construction costs are very high now, simply put, for us, doing drive-up single-story self-storage ground up or expansions, we are having to spend on about $75 to $80 per square foot.
I am not that smart, so I have to break it down simply. For a 10 x 10, that equates to $7,500 to $8,000 per unit. This does not include land cost or existing facility cost.
So, if my profit margin target is 5% cash-on-cash-return when rented, that is $1,125 yearly income or $93.75 monthly. Add land and carry, so today for me, I need to see 10 x 10’s close to $100 per month.
Yes, I will take other factors into account and perhaps take less. But not much less.
So, I start there.
If comparing different opportunities, this can quickly eliminate some. It cost about the same to build that 10 x 10 anywhere, I will burn about the same calories, but where the rents are higher, I get a better return for the calorie expenditure.
Affordability Cost Metric
This is a way to quantify and compare different average household incomes in different trade areas and come up with a metric that rates them on something besides just income itself.
Simply take the annual cost of a 10 x 10 and divide it into the average household income.
We are doing a climate-controlled expansion now, and the cost of the 10 x 10’s are going to be $115.
The average household income in the trade area is $88,023.
So, take $115 x 12 = $1,280. Divide that by the average household income, and we get 1.6%.
According to the 2023 Self-Storage Almanac, if the occupancy cost is below 3.5%, it is “affordable.”
If I am comparing two opportunities, I sometimes take this affordability metric into account. Generally, the lower the better, as long as the rent is close to my return metric mentioned above.
Apartment Rent vs. Storage Rent
In a perfect world, I love seeing the housing cost much higher than the storage cost on a per-square-foot basis.
So, I always check for apartment rent.
So, in the expansion project mentioned above in 2023, the average apartment rent was $1,182 per month, and the average apartment size in that market was 721.
That equates to $1.64 per month or $19.68 per year psf cost.
On our project, after entering the unit mix, we are averaging $12.74 per square foot (it will probably be a little higher, but we reduced it for move-in concessions).
In this trade area, it cost much less to rent storage than to move when life gets too crowded.
This is another potential driver for self-storage.
Education Levels
I also like looking at education levels.
Why?
When times get tough, or in this rapidly changing economy, I have seen people with more education rebound faster and keep their earning power.
In the expansion trade area I have been talking about, 88.3% of the school-age population graduate from high school.
The national average is 87%, so the trade area is higher.
In the trade area, 39.07% of the people have college degrees compared to the national average of 33.7%.
So, in this trade area, odds are if the economy shifts rapidly or dramatically drops, this population should do better than the national average at rebounding.
Conclusion
I don’t make buying decisions on these metrics, but they can influence my decision-making process.
The trade area mentioned in this article had a square foot per capita come back in the 8.5% range in our feasibility report. Still, competition is full, and the climate-controlled space we are bringing on appears to fill a gap in the current supply.
But I also looked at the other metrics we discussed before I voted to add the new space.
I hope this adds to your possible ways of considering if an area is ripe for more self-storage.
Have fun, step, and use some different metrics.
