Short answer: Physical occupancy is the share of units or square feet that are rented. Economic occupancy is the rent you actually generate compared with gross potential rent if every unit were rented at street rate. A facility can look full and still be underperforming if economic occupancy lags far behind.
Physical occupancy #
Every facility in a trade area (usually a 3-to-5-mile radius or a 10-to-20-minute drive) competes for the same customers. During lease-up, after an expansion or in a turnaround, the goal is simple: grow occupancy every month until you reach stabilization. In today’s market Mark treats that as more important than hitting full rental rate during lease-up.
What is a good stabilized occupancy? It depends on the trade area, but as a general rule Mark aims for 88% to 93% physical occupancy. He never wants 100%: a full facility is like a grocery store with nothing on the shelves. At around 95%, it is usually time to raise rates.
Economic occupancy #
As a facility approaches stabilization (Mark starts paying close attention at around 80% physical occupancy), the focus shifts to economic occupancy: getting existing tenants paying close to or at street rate. In the end this is the more important of the two, because it shows how well the business is run. Ninety percent physical occupancy means little if economic occupancy is 65%.
Mark’s benchmark: in a well-run, stabilized facility, economic occupancy is within about 5 percentage points of physical occupancy. A wider gap usually points to slow auctions, weak collections or rates that have fallen behind the market.
Related answers #
- What metrics should a self-storage owner track every month?
- What is a self-storage delinquency ratio and how do you calculate it?
- Why should self-storage owners auction delinquent units promptly?
Source: Mark’s post The Four Metrics Every Self-Storage Operator Should Track Monthly
