Over my 20-plus years in the self-storage industry, I’ve heard the phrase “three mile” quite a bit. Meaning, of course, that any storage facility you own or operate is really only in competition with the stores that are within three miles. The three-mile benchmark has gone more or less unchanged over the past two decades. In some ways, and in some markets, the rule made sense. Are your potential customers willing to drive more that a few miles to rent space that you have readily available? Probably not. Are developers willing to build within three miles of your facility? Maybe.
For quite some time, we’ve had the luxury of being a young and relatively recession-proof industry. The notion being: If you built it, tenants would come, and if you were outside of a primary market, competitors likely would not build within a few miles of your store. Today, we all understand that even if the former holds true, the latter is certainly not guaranteed. While the “three-mile” rule was once an effective measuring stick for storage owners, as more and more investors and developers enter the market, it’s time to reframe and start thinking about the $10 rental rate increase (or decrease) rule.
Rather than thinking about storage in terms of distance, we can think about it in terms of incremental change in rental rates. The $10 Rule (or $1.00 per square foot rule) can simply be illustrated through the example below:
Making an investment in renovating, expanding, or adding new technology to your existing facility should allow you to justify rental increases by at least $10 per month. Conversely, a Class-A facility opening in your market has the potential to impact your rental rates by $10 per month in the opposite direction. This $10 per month can have a huge impact on the valuation of your facility. Assuming cap rate of six, the average self-storage facility could add $1 million in valuation for every $10 rental rate increase.
In an increasingly crowded market, competitors are more likely than ever to build within three miles of your facility. When competitors come, will your store be ready to compete with the brand-new facility down the road?
Over the past decade, several of our customers have come to us asking for solutions to help them compete in progressively crowded markets. Here are the most common cures for combating new competition and ultimately keeping rates high when new stores do open in your market:
- Replacing doors and hallways.
- Changing your unit mix.
- Adding electronic locks and improving overall site security.
- Increasing rentable square footage by expanding or adding relocatable storage units.
By implementing any of these post-construction solutions, you’ll optimize your space, maximize your revenue, and ultimately add value to your site.