For several decades now, it seems that most self storage properties were developed based on the principal that “if you build it they will come.” Unfortunately, those days of finding land and a metal building contractor are long gone.
Our industry just “pole vaulted” into the new millennium with its fastest growth ever. Wall Street proclaimed “Self Storage” as the best real estate investment the first two quarters this year and just added to the flood of new “want-to-be” developers, all with that same old philosophy. Unfortunately, all this new industry attention comes at a time when a great majority of our nation’s major markets are either over built or are fast getting there.
So, what does all this mean and how am I going to compete in today’s markets? It means it time to get back to basics! To understand that it’s the consumer that drives our business. Its understanding their “likes & dislikes,” their habits, and their lifestyles. Its realizing what they perceive as convenient, safe and a “good deal.” It’s knowing everything that makes them a happy, valued customer. And its this knowledge that will determine the success of tomorrow’s self storage developers!
The best way to profile your customers is through an entry & exit surveys of the customers visiting your facility. Special incentives such gifts or discounts help in getting the customer to spend the two minutes necessary fill out the questionnaire. This same survey has been done by Noah’s Ark Development for over 20 years and the following sample results should be very close to a standard profile for the typical self storage customer:
- Sex – 84% of all customers are women. Over 95% who do the moving are men.
- Age – 88% of all customers have an age between 21 and 55.
- Income – 78% of all customers have an income between lower middle to the upper middle income bracket.
- Reasons for leasing – 54% moving. 32 % cleaning out basement / garage, 14% just temporary storage.
- Reasons for leasing from you – #1 Security (62%), #2 Convenience (15%), #3 Street Appeal (8%), #4 Cleanliness (6%), #5 Referrals (5%) Yellow Pages (4%).
- Owner Occupied vs. Renter Occupied – market with owner occupied of 65% and higher require a unit mix average of 120-125 sf./unit. Markets with owner occupied less than 65% require small units with a 110 -115 sf./unit average.
- Median Income – as median income:
- Climate control unit demands increase and vise versa.
- Demand for larger unit mixes increases (120-130 sf./unit)
- Length of stay increases by 3 month
- Non-climate control unit demands increase.
- Demand for smaller unit mixes increases (110-115 sf./unit)
- Length of stay decreases to an average of 6 months.
- Delinquencies increases to as high as 10%.
- Residential vs. Commercial Customers – a facility’s average of residential customers is between 75 and 80%. Commercial customers 20 -25%.
- Commercial Customers – average turnover is 18 months.
- #1 Customer Draw – 85% of all residential & commercial customers come from drive by traffic. Visibility is the single most important customer draw!
The above customer profile has changed very little over the last twenty years and it does dispel several self storage myths. You will notice above that the Yellow Pages account for a very small customer draw especially when all the facilities are in retail locations with excellent visibility. This is a tremendous change from the industry’s beginning when there were very few facilities and the yellow pages was the only means to find one. But with today’s locations, properly placed facilities are just like McDonalds. Nobody goes to the yellow pages to eat at McDonalds. They see a location and when they get hungry, they stop by. The same holds true for self storage. Don’t spend thousands of dollars in yellow page ads unless you are out in the boon docks.
Just as the customers are profiled, so are the different market types they live in. Self storage has three different self storage market types, each representing the different lifestyles of the customer based on demographic statistics within the normal radius defining that market.
The most predominate market in the industry is the “Primary Market.” It includes the largest metro areas in the U.S. with each of metro areas containing numerous primary markets broken down in 1, 2 & 3 three mile radiuses. This market’s typical demographics within a three mile radius are as follows:
- Population is equal to or exceeds 100,000 people.
- Median Age is higher than 38 years old.
- Owner vs Renter Housing is almost 50% – 50%
- Traffic Time to Work – 15 to 20 minutes
From this demographic definition of a primary market you can easily see that this market has a very density which in turn always leads to a stressful lifestyle for population. Since owner and renter housing are close means more cars leading to more traffic. The traffic time to work being between 15 & 20 minutes means the population is spending that amount time just to travel 3 miles! This increased and stressful traffic situation leads to the population determining a traffic pattern which provides a “path of least resistance” and its this traffic pattern where they do everything. Whether it is shopping, the cleaners, food, restaurants, doctors, pharmacies, whatever, its done on their particular traffic pattern. Why, because easier, safe and over time the pattern becomes familiar. With older population, this is an essential part of their lives.
Therefore, what is the key to success in this type of market? Yellow pages won’t help. Mail-out won’t help either. The key is to figure out the market’s customer flow. In other words, determining the traffic patterns of the different residential areas to that market’s commercial and business districts. Once you’ve done that, you have insured long term success with any properly placed facility within those traffic patterns.
The secondary market really represents the suburban areas around a primary market or a smaller city with a population less than 750,000 but greater than 100,000. Just like the primary market, it is characterized by the lifestyles of those live within, but as you will see, the lifestyles have been greatly affect due to difference in living conditions. Because of following demographics which are typical for this market, a 1, 3 & 5 mile radiuses are used. This market’s typical demographics within a five mile radius is:
- Population is between 50,000 to 65,000
- Median Age is between 32 & 34 years old
- Owner vs. Renter Housing is between 70%/30% and 90%/10%
- Traffic Time to Work is between 30 minutes to an hour.
Its easy to see from these demographics that a secondary market fits the “T” as average American suburban scenario. A low density, younger population, living in starter or move-up homes with 2 to 4 children, soccer fields, a neighborhood pool with clubhouse, bunko parties, forth of July picnics and a safe neighborhood, all ingredients for middle class America. Leaving farther from work is a safety factor for the family and neither Mon or Dad have a problem driving 60 minutes to work as long as that security is in place.
What this describes is growth market with boundaries well pass the primary market’s three miles. With Dad and Mom driving these distances, traffic patterns become less important as they are for primary markets but it is still recommended to identify traffic patterns. However, now two patterns need to be identified. The first one is that “path of least resistance” to work and the second is those commercial areas close to home. Most often the first traffic pattern includes the second commercial pattern close to home. When that occurs, the best site locations are most often on the “going home” side of the pattern and closest to the biggest commercial traffic generator. If, both patterns don’t fit, then normally the best locations are closest to home in a commercial area. Why, since individuals in a secondary market are accustom to driving longer and because women are the primary leasers.
Rural markets are completely different from the other two markets! Distance and drive time is longer a problem. Traffic patterns are no longer of any importance. The population leases up to 15 miles from facilities and because of this a 15 mile radius is used. The demographics of a rural market within a 15 miles radius:
- Population is between 20,000 & 30,000
- Median Age could range from 35 to 48 year old
- Owners vs. Renter Housing – renter housing doesn’t exist
- Traffic Time to Work – has not bearing at all.
The rural market is best described as “RURAL.” Everyone that lives there knows everyone there in their market. Most business is handled over coffee at the dinner or following church services on Sunday. Those living in agricultural areas have very little demand for storage. The few that live in city, their needs are usually for large units. In most case, it is not economically feasible since the demand is so small. There are many rural self storage properties, but most are characterized by no offices, driveways, security systems and usually less than 10,000 sf. They adequately provide for the needs of their communities but rarely have a exit strategy other than selling it locally. There is a flood of people retiring in rural markets and that can easily make a difference in the future. Right now, the best way to succeed in a rural market is to develop as close as possible to the market leading and best traffic generator. That’s where you’re leases are going to come from.
Even though the above customer profiles and market demographics don’t change from one market to another, existing market conditions can greatly affect ones ability to be successful in that market. Several example are:
- Availability of land – you can’t build a typical self storage facility in Manhattan NY without buying a building converting.
- Saturation – if the market is over built, the odds are any additional facilities will suffer the affects of the market being over built.
- Jurisdictional Requirements – impact fees may to high to be economical feasible to build or the approvals themselves might take several year to get.
- Rents – existing renter are too low to justify developing
- Zoning – zoning ordinances don’t allow storage or create ridicules criteria that make the property unfeasible to develop.
The list of market conditions that are hazardous to developing is so great and varying from one market to another, that it should be covered in a later article. However, due diligence research is the key to finding them out.
The key to success for tomorrow’s self storage developer is a complete understanding of his customer and the market he lives in. Sometimes the best way to understand is to take the develop hat off and a make yourself the customer. Ask yourself questions? Why is that lady turning left out of her driveway? What is the most convenient way to get to work? Would I use the cleaners closest to my home or one that is on my way to work?
On and on, question yourself. Know that your questions are the same ones asked by your potential customers. And the answers, they will make the difference between your success and failure.