I am beginning to re-think how I calculate lease-up in self storage projects.
When I first entered into self storage in the mid-1990s as a broker helping a REIT find self storage, they used to assume 5% of their square footage per month would lease-up (wouldn’t that be nice today).
It worked for them. It worked for me for a while, but slowly I shifted to square feet per month. For a long time, that worked well.
Then, slowly over the past few years, I noticed that the facilities we have in lease-up and the facilities in lease-up for people I support, seem to be all over the board.
At first, I started equating this to the fact that there is a lot more competition in the submarkets. This is undoubtedly a factor and has impacted lease-up in some of the projects we are involved with, especially the ground up one where the time between the initial feasibility report and the submarket’s reality when we started leasing changed considerably.
Then I remembered last year, the SSA (Self Storage Association) printed an article indicating that the average new self storage construction project was now taking 36 months to achieve stabilization, up from 30 months.
I keep trying to research and see how they came up with this statistic. It seemed to me, using square feet per month, it would sure seem to matter how big the facility was to determine how long it would take to lease-up.
That stat baffled me for months.
I never did get a full explanation of how they came up with that stat other than an average over the projects they tracked.
I mentally wrote it off, or at least I thought I did.
The Research
Then I began to notice something.
I can’t remember exactly how, but I was looking for a common thread that affected how much self storage space gets absorbed in new lease-up situations.
Between our projects and the people I work with, they are all over the board.
I looked at the square feet per capita in the individual submarkets. Certainly, that has an impact. And it does. The more supply, the less absorption. This is certainly a factor. But I could not come up with a formula that seemed to work with the projects I was seeing and knew intimately.
I looked at online marketing.
Perhaps there was a correlation between how much spending there was and lease-up. Again, the more you show up, the better your chances of leasing are today.
I have spent a lot of my own money and time learning the “art of paid traffic” (taken from Rick Mulready’s online adds training). I studied (I think a great idea) other industries and how they use online marketing.
But again, I could not get a formula. I learned if you are not showing up in Google and running online campaigns, for a large percent of the customer base, you don’t exist.
But I could not create a formula correlating online marketing with lease-up.
For about ten years, using a square foot lease-up per month assumption worked very well, but since 2018 or so, it has been very hard to get close to what really happens for us using that.
But you have got to use something, right?
But what?
I continued to research and try to figure out the best approach today.
The Ah-Ha Moment
Then I began to see a pattern.
A simple pattern.
In a fairly healthy submarket (i.e., not overbuilt), I began to see self storage renting up between 2% to 2.5% per month.
This is pre-COVID-19, which has thrown a wrench in everything.
Then I looked at parking.
I saw it was leasing up between 8% and 10% per month.
This is not scientifically-derived, just from a few projects from people I work with and some of our projects.
Now we have some that are below this year because of COVID-19. But I think this is a temporary phenomenon.
At the end of the day, if I am analyzing expansions and new construction, I will be translating the square feet absorbed a month into between 2% and 3% per month for a while.
It seems I am back to where I started in figuring out self storage absorption, using a percentage per month to determine square feet absorbed.
