“I have read that for determining equilibrium a good rule of thumb is to use an avg of somewhere between 7-8 sq ft of self storage per person within the radius you are analyzing. However we all know each market is very different. In analyzing small towns in more rural areas what number do people suggest using (or do they use when doing their analyzation)?
Thanks in advance.”
Yes, that is basically the national average Supply Index range (though some use 6.5 – 7.5), but it can vary lower or higher depending on individual market conditions & variables.
As far as what “number” to use? I’d say instead, what “method”?
I’d still complete a Market Supply Index just to have a number to work with. Then I’d put it into context by looking at the other Facilities nearby. Stabilization is also a range (80% – 90%) so if most of the other Facilities nearby have high vacancy, you can assume that it is systematic. That cuts both ways if most of the Facilities are all experiencing either high or low occupancy.
All things being equal the delta shouldn’t be that great between Facilities as storage is pretty much a commodity. You may have outliers (e.g. high occupancy on all the others and low occupancy on the one you are pursing) and that is usually an indicator of a mismanaged Facility which is good. The opposite is true, if all are low occupancy and the one you are pursuing is high, then that would be bad as you’d be the trendsetter and not much promise in raising the value as everyone is or will soon be competing on price.
And you want to look at typical lot sizes. If it’s rural with small property lots versus those with acreage then the latter probably has more leeway to store their “treasures” on their own property. And municipal “code” may drive folks to store their goods offsite versus having them scattered around the house. And though I’d like to make a funny comment about some of the things I’ve seen in some of the places I’ve seen across the country, it goes back to you can’t paint it all with a broad brush.
So in brief, it depends.
Please remember, there’s a difference between buying an existing Facility where you’re pretty much assuming the existing business and improving it. You should still know the Supply Index but it’s not as imperative if you’re bringing new storage online either through a ground-up development or an expansion. Then being oversupplied may most likely be a deal killer.
If it’s existing, checking out the nearby competitors as mentioned above will paint a picture on the market supply, and if it’s the latter, you’re most likely going to need a Feasibility Study to move forward, especially if you’re borrowing money.
And if there’s no facility anywhere nearby and you want to build one – well, that’s a crapshoot.
I hope this helps.
Scott
