Key Metrics in Self-Storage
When considering a self-storage investment, there are many factors to take into consideration. Three key metrics and measures in self-storage investing stand apart from the rest, however. Understanding these key factors will enable an investor to understand the dynamics within a particular market and for demand at the property level.
Market Radius
Market radius is the area surrounding a self-storage asset in which it's competing for renters. Customers usually live or work within a 3- to 5-mile radius of a facility. As an area becomes more saturated with self-storage properties, though, the radius decreases. Understanding natural barriers, including freeways, bridges, or bodies of water, usually can have an impact on the facility’s market radius.
Square Feet Per Capita
The saturation level of a market or an area is measured by the square feet per person — that is, the gross square feet of storage space available per capita within a given area. The gross square footage is calculated by taking all the square footage available within a 3- or 5-mile radius and dividing it by the population living in that area.
Currently, the average self-storage inventory per person across the U.S. is around 7 net square feet. Typically a market with a per-capita inventory above the national average is considered oversupplied, while anything below is undersupplied. Investing or developing in an undersupplied market may offer significant advantages.
Population Growth and Consumer Demand
Besides the existing supply, population growth and consumer demand are other key metrics to determine an area's potential for future investment. If the population in a 3- to 5-mile radius is growing at a rate of 1% per year, for example, that might indicate strong growth potential. If an area has slower growth but is already densely populated, there may still be plenty of potential for a strong investment.
Consumer demand is measured by the occupancy rate in the given market radius, which will often be indicated in any self-storage feasibility study an investor or developer may conduct. If the occupancy rate in an area is at or above 90%, that generally indicates there is a strong demand for storage in the area. However, if the occupancy rate is in the low 70% to 75% range, it will be difficult to raise rents or fill newly vacated units.
Related Questions
What are the key metrics to consider when evaluating a self-storage investment?
When evaluating a self-storage investment, it's important to consider the population and job growth in the area, the ratio of homeowners to renters, and the proximity to university campuses, residential areas, and businesses. It's also important to analyze the competition within the market radius and the saturation level of the market. The saturation level of an area is measured by the gross square feet of storage space available per person. Currently, the average self-storage inventory per capita across the country is around 7 to 8 net square feet. A market with a per-capita inventory above the U.S. average is usually considered oversupplied, whereas anything below is undersupplied.
What is the average occupancy rate for self-storage facilities?
The average occupancy rate for self-storage facilities varies depending on the location and market. According to this article, you'll need to evaluate the economic occupancy of the property to get a better sense of the potential cash flow. Additionally, this article mentions that secondary markets with positive demographic trends continue to experience the highest growth.
What is the average rental rate for self-storage units?
According to Yardi Matrix data, the overall average street rate for self-storage units, including all unit sizes and types, increased by 1.4% year-over-year in August. In North Carolina, the average 10x10 non-climate-controlled units saw a year-over-year increase of 9% in Raleigh-Durham and 4% in Charlotte. Additionally, self-storage leases generally are no longer than three months, with more and more just operating on a month-to-month basis.
For more information on self-storage financing, please visit our self-storage financing page. For more information on rent rolls, please visit our rent roll page.
What is the average cost of building a self-storage facility?
The average cost of building a self-storage facility can vary greatly depending on the size and location of the facility. According to Multi-Housing News, the cost of building a self-storage facility can range from $20 to $50 per square foot. Additionally, SBA 504 Loans can be used to finance the construction of self-storage facilities.
What is the average return on investment for self-storage investments?
The average return on investment for self-storage investments can vary depending on the location and market conditions. According to Self Storage Success, the average return on investment for self-storage investments is between 8-10%. However, some investors have reported returns as high as 20%.
What are the most important factors to consider when investing in self-storage?
When investing in self-storage, the most important factors to consider are the surrounding market conditions, the level of competition within the market radius, and the saturation level of the market. It's important to look at the population and job growth, the number of homeowners or renters in the area, and the location's proximity to university campuses, residential areas, or businesses. It's also important to consider the number of self-storage facilities nearby, any facilities under construction or in the planning stages, and the gross square feet of storage space available per person. According to Multi-Housing News, the average self-storage inventory per capita across the country is around 7 to 8 net square feet. A market with a per-capita inventory above the U.S. average is usually considered oversupplied, whereas anything below is undersupplied.