02 May 2019
A self storage market analysis is necessary to determine the underlying fundamentals that impact the occupancy rates and rental rates.
Generally, a suburban property will have a trade area radius of three miles, and a more rural property may have a trade area radius of five or ten miles. Very dense areas, such as Manhattan, may only require a trade area of one mile! The general rule of thumb is to have a minimum population of 50,000.
The most important information to be gathered includes the number of units, the net rentable area, and the occupancy rate. While this information can be difficult to obtain due to its proprietary nature, estimates should be obtained from sources such as assessor’s offices, phone surveys, and other public sources. This will allow the supply per foot to be calculated.
Demand for self storage is difficult to quantify; however, the following four demographic variables have been shown to induce demand for self storage:
Additionally, there may be further demand factors that are difficult to quantify such as a nearby university or highway. An estimate can also be compared to the average supply on the state and national level.
On a per-person basis, if the supply is less than the demand, the market is deemed to be under-supplied. If the supply is greater than the demand, the market is deemed to be over-supplied. As a test of reasonableness, a comparison of the conclusion to the average occupancy in the trade area can be made.
Generally speaking, over-supplied markets have occupancy rates less than 80 percent and under-supplied markets have rates greater than 90%. A market with an average occupancy rate between 80 and 90 percent is deemed to be near equilibrium.
Understanding the supply and demand of the trade area is a key component to analyzing and forecasting rental rates.
Originally published as part of the *Self Storage Almanac.
