What is True Economic Occupancy?

Many storage facilities have no problem capturing and retaining tenants. When their occupancy statistics reports (rent rolls) are reviewed, they appear to be 85% to 95% occupied. Are these properties prime acquisition targets?

They won’t have any problems achieving maximum leverage from a refinance, right? The level of occupancy of self storage facilities can be measured in different ways. While some owners measure occupancy in terms of square footage, the most common measurement of physical occupancy is the number of storage units rented. Another key measurement metric is economic occupancy, which factors in concessions and discounts as well as credit loss.

Essentially, physical unit occupancy is a “top line” concept, while economic occupancy is a “bottom line” concept. Typically, economic occupancy is 2% to 5% lower due to concessions and discounts. Many operators and managers focus heavily on maintaining physical occupancy, which is vital. However, spending time and energy on improving economic occupancy “bottom line” is what is most important.

According to Carol Krendl, an experienced storage auditor and consultant based in central California with over 25 years of storage expertise, if your facility’s physical unit occupancy exceeds your dollars deposited (economic occupancy) by more than 10%, you have at least one of the following problems:

• Too many concessions/discounts from market rent
• Excess delinquency
• High amount of prepaid rent
• Issues with employee embezzlement/pilferage
• Uncollected rents/fees

Let’s quickly focus on concessions/discounts. Doesn’t every facility have to offer concessions/discounts and/or move-in specials? Our appraisal practice group surveys thousands of facilities each year and there is a large variance in the concessions/discount programs employed in the marketplace. How do you determine whether to offer concessions, and what process does your facility manager or leasing staff follow to determine what concessions to offer (if any)? Track occupancy and rates of turnover for all your unit types/sizes. Limit or eliminate concessions/discounts given on unit sizes with high rates of turnover. Here are three suggestions to maximize economic occupancy:

• Implement an online payment system to make it easy/safe for your customers to pay using a debit card or one-time/recurring electronic funds transfers (these reduce charges paid to credit card companies).
• Learn, review, and read your monthly reports to see if your facility management software has any add-ons such as fraud alerts! Take advantage of the training/support offered by your software provider.
• At the end of the day, economic occupancy/collections is the only thing that matters to a potential buyer, a lending institution for financing, or to your investors.