Going Undercover and the Art of Market ResearchJun 23, 2023
Self-storage has become an increasingly popular investment opportunity in recent years, with the industry showing strong growth and potential for high returns. I want to talk about how we gauge the market and the industry to help us invest smarter and more efficiently. At Self Storage Income, we conduct secret shopping at self-storage facilities to better understand demand and determine whether a project is a viable option or not.
The development includes capital expenditures and any building or renovation that we would need to do, while acquisitions is the front end of our team that identifies projects and validates whether or not they will be good investments or if we should pass on the investment opportunity.
When we conduct secret shopping, what we’re doing is gathering information about market demand, what units are available and what units are in demand. This information is crucial when it comes to determining a potential conversion project. We need to ensure that we're providing the units that are actually in demand in that market.
Product Market Fit
We talk about product-market fit on the podcast and in the videos. It's a huge aspect of building ground-up or doing a conversion. You've got to build out that perfect product-market fit to make sure that you're providing the units that are actually in demand in that market. If you're building units that aren't getting leased out, you're not going to be able to generate revenue and it's not going to end up panning out.
We'll be visiting a number of facilities and making sure that we're hitting not only the big facilities and big operators but also some of those mom-and-pop operations to get a good idea for the entire market as a whole.
One of the key things we look at during secret shopping is occupancy rates. A facility that is 100% occupied may seem like a good thing, but it can actually be a red flag. If rates are too low, everyone will be coming to that facility and there won't be any turnover. Turnover in storage makes money, as we're replacing cheap rent with higher rent. For example, if a facility is 90% full, the last 10% can be charged at a much higher rate, which changes on a per-unit basis. Every door, every size, the location of the door, and how close it is to an exit, and whether it is climate-controlled or not, all affect occupancy rates.
Overall, self-storage is a strong investment opportunity, and secret shopping is an important tool in determining the best projects to invest in. The industry is expected to continue to grow, with a projected CAGR of 6.2% from 2020-2025. According to data from the Self Storage Association, there were over 52,000 self-storage facilities in the United States as of 2020, with an estimated 2.8 billion square feet of rentable space. With the growing demand for self-storage, now is a great time to consider investing in the industry.
In addition to secret shopping, there are other factors to consider when evaluating a potential self-storage investment. Some of these include:
Location: The location of a facility can greatly impacts its success. Look for areas with high population density, strong demographics, and limited competition.
Condition of the facility: A well-maintained facility will be more attractive to renters and will require less capital expenditure for repairs and renovations.
Management: A strong management team can greatly impact the success of a facility. Look for a team with experience in the self-storage industry and a track record of success.
Rentable Square Feet: The more rentable square feet a facility has, the more revenue it can generate. Look for facilities with a high percentage of climate-controlled units, as they tend to command higher rents.
Occupancy: As mentioned earlier, occupancy rates are a key factor to consider. Look for facilities with a high occupancy rate and a track record of consistent occupancy.
Revenue and Expenses: Review the facility's financials to get a sense of its revenue and expenses. A facility with high revenue and low expenses is a good indication of a successful operation.
In conclusion, self-storage is a strong investment opportunity with strong growth potential. Secret shopping is an important tool in determining the best projects to invest in, but it's important to also consider other factors such as location, condition of the facility, management, rentable square feet, occupancy, and revenue and expenses. With the growing demand for self-storage, now is a great time to consider investing in the industry.
- According to data from the Self-Storage Association, there were over 52,000 self-storage facilities in the United States as of 2020, with an estimated 2.8 billion square feet of rentable space. (Source: https://www.selfstorage.org/industry-research)
- The self-storage industry is expected to continue to grow, with a projected CAGR of 6.2% from 2020-2025. (Source: https://www.researchandmarkets.com/reports/4836248/self-storage-market-global-outlook-and-forecast)
- According to a study by IBISWorld, the self-storage industry in the US generated revenue of $38 billion in 2020 and is expected to grow at an annualized rate of 3.1% over the five years to 2020. (Source: https://www.ibisworld.com/united-states/market-research-reports/self-storage-industry/)
- In 2020, the self-storage industry in the US had an occupancy rate of 84%, which is considered healthy and sustainable. (Source: https://www.selfstorage.org/industry-research)
- According to a survey by the National Self Storage Association, more than 80% of self-storage customers are renting for personal reasons, such as moving or downsizing. (Source: https://www.selfstorage.org/industry-research)
- The self-storage industry is considered a recession-resistant investment, with minimal impact on occupancy and rental rates during economic downturns. (Source: https://www.bisnow.com/national/news/self-storage/why-self-storage-is-a-recession-resistant-investment-98981)