What Makes A Good Self Storage Feasibility Study?
If there was a self storage soap box, and I was standing on it, what you would have heard me say over the past few years was “Get a Feasibility Study!”
Let’s discuss self-storage feasibility studies.
The first thing we should know about them is that we are very lucky in the self storage industry.
Perhaps no other industry will have feasibility reports be so accurate. Think about office buildings, or retail centers.
People will drive cross town to work or shop. It is much harder to actually determine the market area of something like that.
In self storage, no one drives across town to rent a storage unit in most cases. People rent storage where they live or work. It is much easier to quantify who and where your customers are for self storage.
So if you know your market area and where you customers are, next you have to determine how much existing self storage there already is in you market area.
That is easy enough for someone to do as well.
Once you get your current demand (how many customers there are in a subject properties market area) and how much supply there is (how much self storage already exist in a subject facilities market area), then all you need to know is how much self storage per person is normally used in that city, or state.
Not As Easy As It Sounds
Now all of this sounds easy, but there are self-storage feasibility studies, and there are self-storage feasibility reports. I have seen plenty of bad self-storage feasibility studies over the years.
Let’s discuss what makes a good self-storage feasibility report.
In one word it is …Data.
Here is a simple example. How was the market area determined? Was it a 1-3-5-mile radius or was it drive times?
Well if someone just did a radius without determining if in fact that is the actual market area, all of the subsequent conclusions are not necessary valid.
In my hometown, we are a border city separated from another state by a river. In our downtown projects, if you had used radius as defining the market area, that would have been a big mistake. That river is like a wall in most cases.
Few Indiana people are going to drive across a toll bridge to rent a self storage unit. I always check and see if the report has something like below (taken from a report I had completed for a Florida project).
Drive-time maps have been reviewed; however, the demand analysis is based upon radius derived market areas, as this appears to be the norm in this self-storage market.
Also, look closely at the assumptions the person completing the self-storage feasibility study uses. For example, did they assume the other facilities within the market area of the subject facility that have expansion capacity did in fact expand? If not, why not?
Well the reason is because many don’t take the time to determine if any actually do have expansion opportunities on their sites.
One thing I always check for is to make sure the person completing the report does not just use the national statistics, but drills down and knows the state and if possible the local area average benchmark numbers, like how much average self storage per person is used there.
The person I often use for our self-storage feasibility studies often use three different “demand methods” to determine how much demand there is. See example below for a self-storage feasibility studyt.
Now that is very detailed and there is no question that the conclusions have been thought through. We may challenge some assumptions, but most of the time we yield to this person’s conclusions, because after hearing her explanations, we get why.
Art and Science
The one thing we should remember though is that these self-storage feasibility studies are also an art. They are not exact, but they are usually a good predictor of how more space in the subject’s facilities submarket will perform.
Try not to cheap out and get the least expensive self-storage feasibility study. If you are going to spend a couple million dollars, don’t you want the most detailed report possible?
Did the person completing the self-storage feasibility study actually travel to the subject property? You can get a self-storage feasibility study where you don’t have to pay for that, but why would you?
Yes, it may be completed in phases, but make sure you get the best self-storage feasibility study possible. Especially if you are using investor’s money.
Also, some banks want to see a Proforma competed by the person completing the self-storage feasibility study. Find out if you are going to need that and make sure that is within the scope of work the person completing the self-storage feasibility study can and/or will include.
However, whatever you do, if you are bringing on new self storage space into a submarket, get a feasibility report and know how long they are good for. I have seen submarkets change fast (over a year period). If you have an older one, at the very least update it.
Again, we are fortunate in this industry that we have the ability to fairly accurately determine the supply/demand of a submarket.
Take advantage of it with a self-storage feasibility study.