About twice a year, I get on my soapbox and pontificate about using sq. ft/per capita as the sole and primary basis for determining self storage supply/demand in a market or trade area.
It’s that time of year again.
And like all human beings, I love it when others agree with me, and I can build conscious around my opinions and positions.
I was reading an article for last week’s episode when I came across a quote in the Wealthanagement.com article from a self storage data provider:
“On a market level, rate growth is tempering across major and tertiary markets. Street rate performance in markets appears to be largely driven by population growth rather than the level of storage penetration in a market. Especially as rates remain the strongest in high-growth markets in the South, Southeast, and Southwest, despite high levels of available storage supply.”
That has been my experience.
Case and point.
I walked from an expansion opportunity in Florida when the feasibility report came back around 12 sq. ft. per capita.
The next guy crushed it. It leased up fast and was a great addition to their portfolio.
I did an expansion in a TX market. I kept pulling reports during the year after the feasibility report was completed. By the time our construction was completed, and we were to start leasing, the Radius Plus report indicated around 12-something sq. ft. per capita for the address of our property. The feasibility report had it at eight something.
I had 1,000 sq. ft in proforma for lease-up. After all, the property was in “equilibrium.”
We averaged 3,400 sq. ft. per month absorption.
What did both of these markets have in common?
Population growth.
Just some random observations.
- In markets where population growth is strong, demand for self storage, absorption in lease-up, and rental rates seem to either (1) be less affected by sq ft per capita or (2) actually increase the sq ft per capita equilibrium. Not sure which.
- I have noticed in markets where apartment rent growth has been strong, demand for self storage, absorption in lease-up, and rental rates seem to either (1) be less affected by sq ft per capita or (2) actually increase the sq ft per capita equilibrium. Not sure which.
It becomes easier and more cost-effective just to rent self storage than to dramatically increase the monthly rent cost.
- In markets where housing costs have gone up, which is now almost everywhere due to a low supply of houses for sale and increased interest rates pushing down what people can afford, demand for self storage, absorption in lease-up, and rental rates seem to either (1) be less effected by sq ft per capita or (2) actually increase the sq ft per capita equilibrium. Not sure which.
You will never, or almost never, see any of these variables ever mentioned in a feasibility report.
I am not saying sq. ft. of self storage per capita is not valid or important. I am just saying it is not the end-all and be-all of determining supply and demand.
Who is to say what sq. ft. per capita will be equilibrium in a particular market five years from now will be?
As an industry, I think it is time to create more accurate variables for determining supply/demand for a trade area and/or market area, like the rest of the retail world.
To compare it to the medical world, using sq. ft per capita as the sole criteria for supply/demand is like using leeches to suck blood as the sole remedy for getting well.
It’s too blunt an instrument and doesn’t give a holistic picture of a trade area.
Time to grow up as an industry.
