Contributed by Hunter Reynolds and Austin McLeod of Matthews Real Estate Investment Services.
Consumers are seeking convenience over everything else. This evolving consumer preference has caused a dramatic shift in customer-driven operations nationwide. In particular, the self-storage sector has seen an influx of operation adaptation as the industry works to meet consumers’ needs.
Although the industry has experienced record transaction activity and consumer demand since 2021, the sector is in a time of renewal, no longer riding on the coattails of past years’ success. But in an unsettled economy, how can owners increase value without increasing operating costs?
Demand for customer-driven operations
An owner’s goal is to enhance the customer experience while increasing their bottom line. One way to do this is by introducing more technology into the business, like self-service kiosks, mobile apps, and touchless payments. The market for self-serve technology is predicted to grow significantly, particularly within service-based industries such as self-storage.
Typically, the busiest part of the year for self-storage – also known as the “leasing season” begins around April or May and ends by September. Last year, some landlords nationwide noticed a downward trajectory in occupancy beginning in mid-September, leading owners to believe that seasonality had once again returned to the space, as opposed to trends in 2021 and 2022.
While the COVID-19 pandemic drove self-storage demand to new highs by increasing factors such as displacement, home remodels, migration, home/office downsizing, and retirement, these factors continue to fuel consistent demand now, but at a lesser scale.
By the numbers:
- 1.7B+ square feet of self-storage space in the U.S.
- A little over 38 million square feet delivered in 2022
- 52.6M square feet expected to be delivered in 2023
- 1 in 9 Americans use self-storage
Source: Storage Cafe
Valuations: What to watch
Understanding the economic drivers that affect a property’s valuation is critical. By knowing the drivers of value, owners can strategize which operational changes will positively impact cash flow and provide the highest yields long term. The market fundamentals listed below all influence the short and long-term profitability of an investment and should be carefully considered when executing initiatives.
- Increased Demand: As the population continues to expand, there may be greater demand for self-storage facilities nationwide. A larger population increases the need for storage as the potential customer base widens.
- Location: As the population grows, residents are pushed to surrounding communities where new residential and commercial developments are built. Existing facilities in these areas may see increased demand, while new facilities may be built to meet this demand.
- Age of population: As older individuals downsize their living, the need for self-storage services rises.
- Income levels: Income levels can impact rental rates that are able to be charged. Typically, more affluent populations can afford higher rents per square foot, leading to higher valuations in nicer areas. Additionally, higher-income areas may have a greater demand for premium or specialized services like boat and RV storage.
- Environmental concerns: As more consumers become environmentally conscious, there may be greater demand for eco-friendly self-storage facilities that use less energy through solar panels and other avenues. Although the upfront cost of sustainable products can be high, the long-term value is typically beneficial. There are also significant tax advantages for owners oftentimes when implementing solar panels on their facilities.
- Lifestyle changes: A trend towards minimalism and decluttering for some generations may increase the demand for self-storage services. On the other side, Gen Z consumers prefer a maximalist lifestyle, which also pushes the need for storage.
- Market saturation: If the market is saturated with self-storage facilities, it may become increasingly difficult for existing facilities to compete with newer or better-equipped facilities. As a result, existing facilities’ rental and occupancy rates may decline, ultimately leading to a lower valuation.
- New supply: The introduction of new self-storage properties can impact the demand for existing facilities. If new facilities are introduced rapidly, they may capture a significant portion of the demand and impact existing facilities’ rental and occupancy rates. This can ultimately lead to a lower valuation.
- Quality: Facilities that are well-maintained, modern, and offer a range of amenities may command higher rental and occupancy rates, ultimately leading to a higher valuation.
Reducing operational costs while boosting profit
Automating and converting to an entire self-serve operation is one of the most popular ways to reduce costs within service-based facilities. A major reason is that automation eliminates the need for human labor and thus reduces the associated costs such as wages, benefits, and training. Additionally, self-serve operations can reduce errors and improve efficiency, saving time and resources.
Self-serve operations can increase efficiency by allowing customers to complete tasks without staff assistance, reduce wait times, and improve service speed. Self-serve facilities can also provide customers with a more personalized experience by allowing them to customize their interactions with a business. Lastly, self-service options can be available 24/7, making it more convenient for customers to interact with a business outside of traditional business hours.
Example of how businesses successfully convert self-storage facilities:
- Owners can invest in security cameras and lock technology, allowing customers to access their belongings through an app on their phones or by visiting a kiosk on site. This will reduce labor costs and attract a younger generation of customers.
In addition to self-serve facilities reducing operational costs, self-storage facilities can employ a range of additional strategies to increase profitability. One approach is implementing energy-efficient technology, such as LED lighting and energy-saving equipment, which can reduce utility costs and lower expenses. Using drought-tolerant landscaping and rainwater harvesting systems for storage facilities can reduce costs. Regular maintenance and repair of equipment and facilities can also extend their lifespan, reducing the need for costly replacements.
On the other hand, marketing strategies can help to attract and retain customers, such as promotions, loyalty programs, and targeted advertising.
Overall, self-storage facilities have multiple ways to improve profitability. Implementing a combination of these strategies can help them stay competitive and meet the evolving needs of the market and their customers.
Self-storage facilities are attractive investment opportunities in today’s market, particularly in markets with positive population growth and job growth. The move to self-service-based business models is only expected to grow as consumers continue to choose convenience over all else. With the increasing demand for these services, developers and investors can benefit from implementing strategies that reduce operational costs, boost profits, and cater to customers’ evolving needs.
Businesses can capitalize on the demand for self-serve accommodations through energy-efficient technology, water conservation measures, automation, maintenance and repair, marketing and customer retention, or expansion and diversification. By implementing these strategies, businesses can drive growth in the self-storage sector and tap into the increasing demand for self-serve storage solutions.
About the Authors
Hunter Reynolds is an investment sales associate within Matthews™, specializing in the acquisition and disposition of self-storage facilities throughout Oklahoma, Louisiana, Mississippi, Arkansas, Missouri, Tennessee, and Alabama.
Austin McLeod serves as Vice President of Matthews™ Self-Storage division. Having sold over 2.5 Million rentable square feet of storage in 12 different states, Austin works with a wide range of clients, including private investors, developers, private equity funds, and the industry’s largest institutional investment firms.