Over the past few years, I have been questioning if the standard measure we all use, how many square feet of self storage per person exists in a given trade area, is the best measure to determine the supply/demand of that trade area.
What I am noticing is that in many parts of the country, what is showing up as “over-saturation” in no way mirrors what happens in reality.
This observation is especially true around coastal areas and near recreational areas.
Or in the south-eastern part of the U.S.
Or in Texas.
Or, I am starting to question any per square foot stat I see today as a true indicator of over/undersupply.
We did a project in the Houston market, and by the time we started leasing our expansion, the trade area registered around 13 square feet per capita.
Had I seen that number when we first did the deal, I would not have done it. But by the time we got the expansion ready to start renting up, that was the number, at least according to the subscription services I had started using.
But we average over 3,400 net square feet lease-up per month. And, we leased up in four months. My pro forma had it at almost two years.
Same on a coastal property. We didn’t do the expansion because of the square foot per capita number, but someone else did. And they killed it.
Other Measures
I am not sure what other measures to use, however.
In the retail business, as a Broker, for example, I can run a “gap analysis,” and depending on discretionary spending in the trade area (average income and household net worth), and what type of retailers are already there, we can determine what type of retailer is really needed in a new shopping center, for example.
I say all the time self storage is a retail business.
But, does a person’s discretionary income determine whether or not they rent self storage?
Not really.
It may determine how long they stay or what my rental rates are, but other factors at play create the need for storage.
Not many people drive down the street, see a storage door, and say, “I need a unit,” unless something creates that need, like moving, divorce, or a spouse wanting a clutter-free living space.
No, I think at this point, square feet per capita is perhaps still the best measurement but, it has its limits.
Perhaps we need to start making adjustments to it, like a real estate agent does when they are doing a CMA (comparative market analysis) to determine the value range of a house.
When I used to do CMA’s (a long, long time ago), we would take recent sales of houses nearby and make monetary adjustments for the differences between them and the house I was analyzing.
If the sold comp had four bedrooms, and the subject house had only three, I would make an adjustment on the sold price downward to reflect that difference.
Perhaps we should as an industry be doing the same for that square foot per capita number and not just go with averages anymore.
Adjust the number up in southern states in market areas with over a certain population.
Or reduce in northern states. Raise it near the coast, etc.
I bet someone smarter than me could create computer algorithms that reflect lease-up stats in certain markets, then a simple person like myself could input some data, then, wah-la, closer to reality per square foot per capita number gets spit out.
Something like this sure would make my life easier.
Or perhaps I am just crazy and what we have is all we need.
Thoughts?
