Here is a recent article I wrote for Inside Self Storage.
If there was a self storage soapbox, and I was standing on it, what you would have heard me say over the past few years was “get a feasibility report!”
This statement rings louder than ever with so much new self storage still hitting the market. If you are bringing on any new square footage of self storage on a project, get a feasibility report!
Given you will be spending millions, why in the world would you bring on more self storage only to not rent up or not rent up fast enough?
Let’s discuss feasibility reports.
The first thing we should know about feasibility reports is that we are fortunate in the self storage industry today.
Perhaps no other industry will have feasibility reports that are so accurate. Think about office buildings or retail centers.
People will drive across town to work or shop. That is why, in these sectors, it is much harder to determine the market area accurately.
In self storage, no one drives across town to rent a storage unit in most cases. People rent storage where they live or work. It is much easier to quantify who and where your customers are for self storage. In our portfolio, 86% of our customers live 3.2 miles from our facilities.
If you know your market area and where your customers are, next, you have to determine how much existing self storage there already is in your market area.
That is easy enough for someone to do as well.
Once you get your current demand (how many customers there are in a subject properties market area) and how much supply there is (how much self storage already exist in a subject facilities market area), then all you need to know is how much self storage per person is normally used in that city or state.
How To Choose a Provider
All of this sounds easy, but there are good feasibility reports, and there are bad feasibility reports. I have seen plenty of bad feasibility reports over the years.
My suggestion is to ask for and review a feasibility report that the provider has already completed.
And what are we looking for?
In a word, it is… Data.
Here is a simple example. How was the market area determined? Was it a 1-3-5-mile radius, or was it drive times?
If someone just did a radius without determining the actual market area, all of the subsequent conclusions are not necessarily valid.
In my hometown, we are a border city separated from another state by a river. If you had used radius as defining the market area in our downtown projects, that would have been a big mistake. That river is like a wall in most cases.
Few Indiana people are going to drive across a toll bridge to rent a self storage unit. I always check and see if the report has something like a river or an airport, or in some cases, even a major expressway can act as a barrier.
Here is a statement taken from a report I had completed for a Florida project.
- “Drive-time maps have been reviewed; however, the demand analysis is based upon radius derived market areas, as this appears to be the norm in this self-storage market.”
Also, look closely at the assumptions the person completing the feasibility report uses. For example, did they assume the other facilities within the subject facility’s market area that have expansion capacity did, in fact, expand? If not, why not?
Well, the reason is that many don’t take the time to determine if any do have expansion opportunities on their sites.
One thing I always check for is to make sure the person completing the report does not just use the national statistics. But rather drills down and knows the state, and if possible, the local area average benchmark numbers, like how much self storage per person is used there on average.
The person I often use for our feasibility reports often uses three different “demand methods” to determine the amount of demand. See the example below from a feasibility report.
For example, demand method one of square feet per person, demand method two, square feet per household, demand method thee, capture ratio. Then all are compared analyzed, then an overall demand number or range is determined.
But the methodology is there, and I can see how it was determined. We may challenge some assumptions, but we yield to this person’s conclusions most of the time. After hearing their explanations, we understand why.
What Should A Feasibility Report Address?
We have already mentioned market area, market area supply, market area existing population, demand methodology, and market benchmark numbers for undersupply, equilibrium, and oversupply.
The one thing we should remember, though, is that these feasibility reports are also an art. They are not exact, but they are usually a good predictor of how more space in the subject’s facilities submarket will perform.
Try not to cheap out and get the least expensive report. If you are going to spend a couple of million dollars, don’t you want the most detailed report possible?
Did the person completing the report actually travel to the subject property? You can get a report where you don’t have to pay for that, but why would you?
Also, some banks want to see pro forma statements competed by the person completing the feasibility report. Find out if you are going to need that and make sure that it is within the scope of work the person conducting the feasibility report can or will include.
See if the person completing the feasibility report will provide assumptions on how fast the new space you are bringing online will lease-up.
A good feasibility report will also address the type and size of new space the market area appears to favor. For example, climate-controlled space may be missing in the market area, or there may be a need for larger non-climate-controlled units. We always try to see that this data will be addressed within the scope of the report.
Again, we are fortunate in this industry to fairly accurately determine the supply and demand of a submarket. Never bring new space without having a good report completed that addresses what we have discussed in this article.
Self storage has a lot of advantages as a business and a real estate play. The accuracy of these feasibility reports is a big advantage other sectors cannot provide.
Take advantage of it.
