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Selecting a Market for Your Self-Storage Investment
Explore self storage market analysis best practices with our comprehensive guide, designed to help investors make well-informed decisions in the dynamic self storage sector.
No two markets are the same, whether you’re talking multifamily performance or office fundamentals. The same applies to self-storage investing: You need to have a deep understanding of a market’s ins and outs before pulling the trigger on any investment, whether it’s your first self-storage property or your 40th.
In this article, let’s get into assessing a market to determine where you ought to invest. I won’t outline which specific markets are hot and not-so-great right now — honestly, it all changes depending on your investment strategy and, of course, time. Plus, it’s a bit subjective, as your market choice will feel a bit like both an art and a science.
Understanding Market Dynamics
Market dynamics are anything that differs from place to place. Population growth, construction activity, employment breakdown, homeownership rates, and so on all count.
Population and Job Growth: Indicators of Demand
Population and job growth are more than just numbers — they're vital indicators of potential demand in self storage.
For example, areas with a growing population often see increased demand for storage due to people moving in or out, lifestyle changes, and housing transitions. Job growth can suggest economic stability, leading to more businesses needing storage for equipment or documents. At the same time, more jobs generally means more disposable income. And when people have more money, they tend to buy stuff. (That stuff has to end up somewhere, doesn’t it?)
Homeowners vs. Renters
The dominant group in your target area — whether homeowners or renters — can significantly influence demand patterns. Homeowners often need storage during life transitions like downsizing or remodeling, while renters might seek storage solutions during moves or for extra space. Understanding these dynamics helps tailor your services and marketing efforts.
Proximity to Key Areas
The location of your facility in relation to universities, residential areas, and business districts can significantly impact demand. For instance, proximity to a university might mean a higher demand during summers, while being near residential areas could ensure a steadier customer base.
Micro-Location Analysis
Effective self-storage investment involves getting granular with your location analysis. It's crucial to understand the dynamics within a 3- to 5-mile radius of your facility. This includes analyzing local traffic patterns, community demographics, and even competitor facility standards.
Part of this is because self-storage users don’t want to be too far from what they’re storing — usually. If someone is moving to an apartment from across the country, they might need access to their stuff on a fairly regular basis. If you’re not near people who’ll use the property, even a superior property with great pricing may fail to deliver much.
Advanced Market Analysis
Beyond knowing the key demand drivers and market dynamics, it also pays to understand who is operating in your market — and how they’re able to do it.
Competitor Analysis
Assessing the competition involves more than a surface-level glance. It's important to look at their occupancy rates, pricing strategies, and any unique services they offer. This helps identify gaps in the market that your facility could fill.
You should also see where they’re actually operating in the market. If there’s a large part of the area with no self-storage presence, it could represent a great opportunity — or it could also be an indication that it’s absolutely not the right place to be.
Regulatory Landscape
Understanding the regulatory environment is key. This includes zoning laws, which can affect facility expansion or modification, and local regulations that might impact operational aspects like pricing and facility management.
Economic Trends
Keeping an eye on economic trends helps predict market shifts. This includes tracking local housing markets, employment rates, and even broader economic indicators that can influence the demand for storage space. I would encourage you to familiarize yourself with the Bureau of Labor Statistics’ monthly “Economy at a Glance” reports, and give them at least a cursory glance as part of your market analysis.
Conclusion: More Than a Feeling
You shouldn’t just pick a market on a whim or by some gut feeling. If this article teaches you only one thing, let it be that.
The true key in assessing a market is to understand what’s causing demand to be where it is now and, of course, what could impact that demand in the future. This is important not only for market selection but for understanding your risk, too.
One thing you should remember: A great market isn’t great because some massive self-storage operators are doing well there. A great market needs to be great specifically for you.
There are as many investment strategies as there are investors, so avoid falling into the trap of investing someplace just because everyone else seems to be doing it. Run your numbers. Conduct your analysis. If it makes sense, then go for it. If it doesn’t, don’t.