Self Storage Consulting

Where Should We Build?

The self storage industry has grown immensely over the last 10 years. We have found ourselves at a crossroads of overbuilt markets and new developing markets. We live in a time when everything seems to change overnight. With a new aggressive generation of entrepreneurs and the continued expansion of the self storage REITS, how do we protect our growing businesses? Where should we build?

To build or not to build? That is the question.

People call me all the time wondering why they should spend their money on a market study for their site. Many still believe in the Field of Dreams notion that “if you build it, they will come.” Well, sure, this worked for Kevin Costner back in 1989, but I can tell you that as of 2013, this fairytale concept is long gone for self storage.

We no longer have the luxury of throwing up metal build- ings, guessing the square footage, and hoping people will rent. Everything we do in this industry is a well thought out, calcu- lated risk. Finding the right location has become a science and you’d better educate yourself if you plan on competing in these markets.

Before Wal-Mart or Best Buy spends millions of dollars build- ing facilities, they will spend thousands of dollars researching markets. What makes the self storage industry any different than these retailers? Absolutely nothing! Just like Wal-Mart, we are trying to reach customers, and we do this by determining our supply and demand. Finding the supply and demand is a lot easier than most people think. By following five simple steps, we can determine if our site is suitable for self storage.

Step 1: Determine the Market
Step 2: Draw the Radiuses
Step 3: Plot the Competition
Step 4: Determine Competitors’ Square Footage Step 5: Supply and Demand

The materials you will need: Google Earth or a preferred mapping software, postal counts, and your 2014 Self-Storage Almanac.

Determining Your Market And Radiuses

In a preliminary market study, we use radiuses to evaluate our customers and to determine available square footage. We do this by first determining our market. Easier said than done? Actually, no! We’ve made it simple by categorizing markets into primary, secondary, and rural.

The larger metro areas in the U.S. can be considered a pri- mary market. In this market, the population could be greater than or equal to 100,000 with a 50/50 ratio of owner vs. renter housing. People in this market are normally older than 38 years old and their traffic time to work can be between 15 and 20 min- utes. For this market analysis, we would use a one-, two-, and three-mile radius.

The secondary market can be classified as the suburban areas surrounding the primary market. People here usually own their homes, have families, and are willing to travel 30 minutes to an hour to and from work every day. This market can be broken down into one-, three-, and five-mile radiuses. Finally, we have our rural markets. In these markets, rental housing doesn’t exist, traffic time to work has no bearing, and the population could be under 30,000. A rural market requires one-, four-, seven- and sometimes even 10-mile radiuses.

The aerial of San Antonio, Texas, shows three different facilities (developed by Noah’s Ark Development) that fall within the primary, secondary, and rural markets. The facility to the left with the white markers demonstrates a primary market. Each marker represents a customer who leases from this par- ticular facility. This facility is located in a busy part of San Antonio near many office buildings and apartments, so we see that most of the customers in this primary market are leasing within the one-, two-, and three-mile radius.

The facility to the right with the red markers is an example of a secondary market. This facility is located near Randolph Air Force Base, so even though many customers will lease within the one- and three-mile radius, we need to account for the customers located in the sub- urban areas in the five-mile radius that will travel past our facility going to and from the base for work.

The facility located north of San Antonio in Bulverde, Texas, with the yellow markers can be considered a rural market. In this marker, customers are traveling three, five, seven, and even 10 miles to lease from this facility.

Understand that, over time, your markets may change so you will need to adjust your radiuses and unit mixes accordingly. Since these market studies were done, the city of San Antonio has grown significantly. Due to this expansion, the facility with the red markers now falls into a primary market and the facility with yellow markers is now in a secondary market.

Plot Your Competition

Now that we have determined our market and drawn the appropriate radiuses on our map, it’s time to plot our competition. You can use Google Earth or almost any search engine to locate your competitors. I always cross- reference with one or two other sites just to be sure. Only plot the competitors that are within your radiuses. We do not care about competitors outside of our particular market (the three radiuses). Information regarding the size of each of your competitors can be found on the county’s property appraiser website. Another option is using your mapping software’s drawing tool and measuring the square footage by hand.

Figure 2 is a Noah’s Ark Self Storage facility located in Buda, Texas, in a secondary market. The facility is sur- rounded by numerous residential areas and the people residing in Buda travel north and south to two major primary markets—Austin and San Marcos—for work. Due to these living habits, we can define this market as a secondary market and therefore will use the one-, three-, and five-mile radiuses. The four major competitors within the radiuses are plotted as follows: one competitor in the one-mile radius, two competitors in the three-mile radius, and one competitor in the five-mile radius.

Finding Your Supply And Demand

Once you have the total square footage of each competitor, you can move on to the supply and demand phase of your study. For determining the population within your market, I suggest that instead of using cen- sus data, you pay for postal counts. Postal counts are revised annually and take into account every person who is receiving mail within your radiuses. This will give you a much more accurate population than pro- jected census data. I use census data for demographic purposes, but I always take into consideration the chance for error.

Figure 3 represents the postal count data for the Noah’s Ark Self Storage in Buda, Texas (Figure 2) within the one-, three-, and five-mile radiuses. The number used in our supply and demand calcula- tions comes from the active population upper range.

Once we have our postal counts and competitors’ square footage, we need to find our market’s residential demand mul- tiplier. This is the only hard part of the entire study. Remember MiniCo’s 2014 Self-Storage Almanac you just bought? Go ahead and open that up. Here, you can find the square footage per person in many major cities across the U.S. They make it so easy for you!

We multiply this number by the postal counts for each radius and this gives us the square foot net demand based on popu- lation for our market. Since commercial customers make up about 20 percent of our tenant mix, we can’t leave them out. So we multiply our net demand by 20 percent and this gives us the gross market demand. Repeat this equation for each radius.

Now, before you start celebrating, remember we aren’t the only ones in the market. We measured each competi- tor’s square footage within our three radiuses and this has to be subtracted from the gross net demand, along with your facility’s proposed square footage. Only subtract competitors’ square foot- age that falls within each radius.

Remember, you have to use competi- tors from your smallest radius when you are calculating your largest radius (one- mile radius competitors will be added to the three- and five-mile radiuses). You may only have two competitors in your first radius, but nine or 10 by the third radius. Many times, I have received complaints from people who only did the supply and demand for the smallest or largest radius. Don’t do that! Each radius has its own population and competi- tors, so it may be overbuilt in a one-mile radius but not in a five-mile radius. Do the study in its entirety.

In Figure 4, we see the square foot net demand in each radius for the Noah’s Ark Self Storage in Buda, Texas (Figure 2). The residential demand multiplier comes from Austin, Texas, which is less than one mile away from Buda. The total popula- tion in a one-mile radius is 5,854. Multiply the total population 5,854 by the residen- tial demand multiplier 9.12 and this gives us the total square footage based on population 53,388.

Multiply the 53,388 by the commercial multiplier 1.20 (20 percent) and we get the gross market demand of 64,066 square feet in one mile. For the one-mile radius, we add the square footage of competitor 1 with the proposed square footage of the Noah’s Ark Self Storage facility, which gives us a total of 145,850 square feet.

We subtract 145,850 from the gross market demand 64,066 and we get a negative net demand of 81,784 square feet in a one-mile radius. We follow the same steps for the three-mile radius and five-mile radius:

Three-Mile Radius: (9.12 x 21,329 = 194,520 square feet); (194,520 x 1.20 = 233,425 square feet); (233,425-213,699 = Positive net demand of 19,726 square feet) 

The supply and demand for the Buda site establishes that we have a negative net demand of 81,784 square feet in a one-mile radius, a positive net demand of 19,726 square feet in a three-mile radius, and a positive net demand of 303,487 square feet in a five-mile radius. According to the one-mile radius it would seem we are in an over built market, but since the location is in a secondary mar- ket (Figure 2) we need to consider the 3 and five-mile radiuses. Even after adding the proposed 64,350 square footage facility we find a demand for self storage in the three- and five-mile radiuses, which would allow for this site to move on in the development process.

If you’ve taken these steps in your market, you’ve just completed your very own preliminary market study! If any of your radiuses show a significant posi- tive net demand, congratulations! You can move forward to the next step in the development process. If your net demand comes back negative, you are in an overbuilt market and should not continue developing this site.

Please don’t become discouraged. I receive almost 10 sites every week and nine out of 10 times, these sites never make it past the first market study. This never deters me from searching for my perfect site. It’s like my dad’s favorite old fishermen’s adage he tells me every time we’re fishing and I’m catching weeds instead of fish: “Ninety percent of the fish are in 10 percent of the lake.” By applying what you have learned and tak- ing the time to do a market study, you are getting one step closer to finding your 10 percent of the lake. If you do your research, you can build it. And, “If you build it”—in the right place—“they will come.”

Rachel Parham is a Consultant and Project Manager of the Parham Group Companies (NDS Construction, Joshua Management, and Noah’s Ark Development). In 2008, after graduating from Texas A&M University, she moved to Washington, D.C., where she worked for the Department of Justice, Drug Enforcement Administration, and U.S. Congress. In 2013 she joined Noah’s Ark Development where she executes market research and development for all Noah’s Ark Self Storage sites and Parham Group clients. 

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