Sensei's article in April edition of Mini-Storage Messenger

How to Determine the Ideal Unit Mix for Your Self-Storage Build

One of the most anxiety-producing steps in self-storage development can be figuring out the right mix of unit sizes to build. To the self-storage newbie, the unit mix often seems to be more of an art than a science. I sat down with a few industry experts to get to the bottom of this process.

Getting Started: Don’t Even Think About Taking the Easy Way Out

Although baseline unit mixes proliferate online and in books, experts unanimously agreed it is best to throw them out the window and start your unit mix research with a blank slate. “Because there isn’t a formula that includes every option, they aren’t viable,” explains RK Kliebenstein, author of multiple books including How to Make Money in Self-Storage. “You can’t know what your unit mix should be until you understand the inventory and demand in the marketplace.”

The most reliable means to determine the self-storage demand for your particular market is to study its unique customer demographics and competitive landscape. Begin with all the pertinent prospective customer data within the desired radius of your proposed building site such as age, population density, renters vs. home owners, income level, occupations, household make-up, number of local businesses, etcetera for your site.

Self-storage demographic data is gathered on a micro-level. You need to know the consumer behavior in your small trade area, and unless you are in a rural area this will be less than a ten mile radius, and may be as small as a one mile radius depending on your market. Your trade area is also determined by traffic generators (think shopping centers, hospitals, schools), and the traffic counts and patterns for your proposed location.

“Let the demographics tell you the right average sizes your units should be,” says Kliebenstein. “Then you can take that information and test it against the current supply and demand.”

Competitive research to determine that supply and demand is a combination of desktop and in-person information gathering. After locating all competitors in your radius, calculate their unit sizes and occupancy levels, gather pricing data and analyze their strengths and weaknesses.

Accurate competitive intelligence is crucial to calculating demand. When shopping the competition online and in-store, you are trying to get as accurate as possible count of the amount of square footage available in the market and occupancy levels for each unit size. Whether facilities are full or not, what sizes are popular, and how drastic the promotions are to get new tenants for each size, dictates not only what unit mix will be most profitable for you, but whether or not you should even build in this location.

Another data point you need to calculate demand are self-storage projects in development. Check with local planning, zoning and building permit agencies to make sure you know about facilities in the application and approval stages of construction.

Use an industry resource such as the Self Storage Almanac to note the forecast demand number in your proposed market, as well as how much supply your market should have to reach market equilibrium.

Now put the demographic and competitive data you’ve gathered to work calculating current and future market demand. Take the population number for your trade area and multiply it by the forecasted demand number. This is the gross demand in square feet for your trade area. Next, subtract the result  from the sum of the total existing amount of square feet of self-storage and square feet in development in your trade area. This gives you the net demand in square feet in your trade area.

One caveat: this is a high-level overview of the demographic and competitive analysis research process. Although it is time consuming and requires painstaking attention to detail, this step of your feasibility analysis is the primary source of data you need to plan your optimum unit mix.

The Chicken or The Egg

When posed with the question, “which chicken or egg do you believe comes first: designing the building footprint for maximum coverage and filling in the unit mix, or determining optimum unit mix and then designing the building?” experts maddeningly concur the answer is both.

Steve Hajewski, marketing manager at Trachte Building Systems, advises maximizing your building coverage first and then adjusting unit mix based on the land. “If the land is expensive, it will affect your footprint and the number of drive-up units,” he says. “Depending on the parcel, you may need to do jogs or complex buildings. Either way, you still want to get the most rentable space possible within the constraints of stormwater features and zoning requirements. Once the footprints are established, then you can layout the units and adjust as needed.”

Designing the Site Plan and Layout

Prior to tackling this step, you should know the unit sizes with the highest demand and how many more square feet of self-storage your market can absorb. “But don’t pencil whip the numbers too much,” cautions Cody Reynolds, regional director at The Sterling Group. “Although 5 x 5’ climate control units look like the best choice on paper, you can’t build an entire facility out of those. Over time, proper revenue management makes larger units more profitable because tenants’ longer length of stay in these sizes leads to high occupancy levels.”

There is no reason not to get more than one site plan either! Consult with your architect, door company, feasibility analyst, building manufacturer and other owners before deciding on a final layout.

“Unless you are doing a conversion, the great thing about self-storage is everything is built on a five-foot grid,” explains Kliebenstein. While you are deciding what unit mix works best within your land, market and budget constraints, use your grid paper to visualize how you could change unit sizes and options by changing building sizes, hallways and drive-up units.

Kliebenstein offers a few tips to avoid forcing your unit mix (or trying to put “square pegs in a round hole” as he refers to it):

·         Hallways are the enemy because they are non-income producing.

·         Corners may create difficulty at the end of a hallway. Consider work-arounds such as building a 10 x 15’ unit into the hallway to avoid dead space.

·         Use the ends of your rows for your 5 x 5 units.

Self-storage owners seeking to maximize every inch of their property may also use lockers or caged areas to sell non-standard sized units. When building a multi-story facility or doing a conversion, the unit mix is adjusted to accommodate the building’s footprint. “We recently did a project in 2.5’ increments to accommodate the site,” says Reynolds. “The units are 5 x 7.5’, 5 x 10’, 10 x 7.5’, 10 x 10’, and so on.” When marketed correctly, unusual unit sizes may be a competitive advantage as customers see they are getting more space and value for their money.

Partitions

Using partitions to adjust unit size based on market demand after building is a great idea that doesn’t happen often in reality. The initial layout becomes crucial in the future to ensure units are accessible when divided. For example, if a row of 10 x 20’ units back up to another row of 10 x 20’ units, the middle row could not be partitioned off into 10 x 10’ units because customers would have to walk through the exterior units to get into the interior units.

“It is better to adjust rates than walls,” says Hajewski. “Let’s say your 10 x 20’s are not full. By raising the street rates of the 10 x 15’ and 10 x25’ units, the 10 x 20’s appear more attractive to the customer.” He also cautions against taking out too many partitions in a row because of potential structural issues.

Phasing

Experts often advise self-storage owners to build their project in phases to help determine their optimum unit mix. And certainly, phasing does allow you to be flexible.

“I’m not sure the advantages of phasing outweigh building all at once,” says Kliebenstein. “Phasing adds complications. Financing may go awry if your bank changes their policies or your loan officer goes away. Construction causes issues for current tenants and may damage your asphalt. Security is compromised when you have to leave your gate open during construction.”

He points out phasing may allow competitors to enter the market, and advises making your future plans public on your website so potential competitors hopefully find out and change their mind before building in your market.

On the flip side, Hajewski observes, “if you don’t phase, you are taking a bigger risk. If you build too small, you’ll never have great cashflow regardless of occupancy. If you build too big, you risk an extended rent-up period of negative cashflow. Building in phases also gives you an opportunity to adjust the unit mix as you expand.”

“I’ve met many mom and pop storage owners who did phasing and became multi-millionaires building over three to five years,” adds Reynolds. “Phasing allows you to make more calculated decisions and create huge asset value over time.”

Avoid Common Traps

Don’t rely solely on outside advice, but don’t ignore it either. Kliebenstein recalls a 60,000 square foot project made up solely of 10 x 10 units. “Over the years I’ve seen first-time self-storage owners listen to others in the absence of data when they did not know their market,” he says. “Conversely, I’ve also seen owners choose to believe themselves over experts and let their ego lead.”

Cody Reynolds cautions against following trends instead of making market specific decisions. “Let the market determine your unit mix based on supply and demand. Don’t build a cookie cutter facility.”

Likewise, be aware of extremes, reminds Hajewski. “Too many small units or all boat and RV are unlikely to make money.”

Often times, demand for particular unit sizes change over time due to big changes in customer demographics or competition, or due to small changes like time of year. Avoid complacency and continue monitoring your market monthly – or at a minimum quarterly. Knowing market conditions allows you to change promotions and pricing when you can no longer change your unit mix.

Research or Luck

Calculating the optimum unit mix is not like playing golf, laughs Kliebenstein. “The market should tell you that you are going to be right.” He recommends every self-storage owner have at least one industry mentor to turn to for guidance.

“First time storage owners often get caught up trying to develop a unit mix too early in the development process. It is more efficient at first to use a basic investment calculator like the one at trachte.com to determine income and cost per square foot,” says Hajewski. “Attempting to work up an exact unit mix before you have a survey and stormwater plan isn’t necessary.”

Self storage financials are built on the unit mix and lease-up timeline. “Remember, what looks good on paper doesn’t always drive demand,” Reynolds adds in closing. “The only way to figure it out is to constantly do research, and continue working on your proforma at 120, 90, 30 days out – all the way up until building is complete.”