What are the key factors that control Self Storage Rates?
There are many factors control the prices of Self Storage spaces. In our view fear is the biggest factor in setting prices as it is really evident that many sites set their prices cheaper than their fellow facility, hoping that they will attract more business than they do. That’s human instinct.
We think it’s more complicated than that. Unit sizes, local demographics, local exposure and many other factors control what your prices should be.
Over the last 20 years or more, Self Storage rates have not really kept pace with the increase in land price and development costs.
About five years ago if you graphed the rise in Self Storage prices with the increases in land and development you would have seen the lines on the graph crossover. This simply means Self Storage returns are diminished and in reality are reducing.
For some operators, but not all…
New competition always plays a part in setting Self Storage rates although Self Storage development has been in decline for the last seven years as compared to the seven years previous to that period. Up until 2007, Self Storage facilities were being built worldwide at an unsustainable rate.
How does the average operator combat this? In the old days it was pretty easy just to put the Self Storage rents up in January by 5%: no one really complained and that was that. There is a way to increase rates.
Self Storage Rate Management is the new buzzword of the industry, it has been around in various forms for at least 10 years, but few operators have implemented consistent rate management well. There is little doubt that tenant rate management and new customer rate management is a science and products like SiteLink Web Edition work towards delivering a solution to assist any operator to manage both rates for the existing customer and new rates for new move ins.
Seasonality plays a major part in what rates should be as we have quite times we have busy times, although the industry needlessly gives money away in January and February when it is our busiest time with pointless discounts. This should be the time the industry makes the most money.
Others Play The Rate Game
Smart operators will use the rate management controls in products like SiteLink Web Edition to enhance the cash flows of between 8% and 15% per year. We know of one operator in Australia that has increased their rates by 40% in five years, smashing the national average, which is much lower.
Airline companies, rent a car companies and hotels have been practising rate management for many years and the price spread between their customers on any given day or night can be as much as 40% for what would appear to be the same service. If you’re not sure next time you’re on the plane ask the guy next you what he paid for his ticket, you’ll soon discover is not the same price you did!
In reality you are all sitting on the plane together and you are sitting in economy, theoretically the product is the same for all. The reality is that it isn’t.
Supply and demand for these operators controls the spread of pricing across the rate management systems that are used for daily bookings for cars planes motels. Self Storage more recently has adopted a similar approach with larger companies specifically in the United States adopting a similar approach to revenue management, resulting in an overall rental position which is in some cases up to 30% higher than a competitor facility.
Huge Number of Factors
Paul Darden the mastermind behind District Manager software which is a add-on tool for SiteLink Web Edition believes there are over 100 variables in determining the rate for any given Self Storage space. District Manager has been developed with this logic in mind and with careful analytics can deliver real-time increases in rates based on the controlling factors that control the rates.
A clear example of a factor that can control price is disposable income. Mozo.com.au have released data this week that shows Canberra in the ACT has the highest disposable income after mortgage expenses at $3271 per month of any major city in Australia. This is due to the high concentration of public service jobs on high incomes. Theoretically this shows that the ACT should have the highest Self Storage rates in Australia.
But it doesn’t.
Affordability Not The Only Key
Sydney has the lowest net income after mortgages at $$1895. In many areas of Sydney specifically on the North Shore and CBD suburbs have some of the highest rates in Australia, despite the lowest affordability by customers, demand controls price much more than affordability.
Affordability each month cannot be the sole determination of rates as logic would dictate that the ACT should have the highest rates and in Sydney the lowest. It’s a complex science were a matrix of many factors controlled by demand and product determine the price.
As an operator, it’s important that you use tools the can take advantage of this knowledge. SiteLink Web Edition has sophisticated rate management tools for existing tenants and for new customers. The software based on your assumptions that you have added based on your research and the tool can deliver what it believes to be the best rate for every move in. Taking the advice of the software rather than your gut feeling will increase revenue to your facility.
Combine this revenue model with online move in technology like RapidStor which is offered as a plug-in for your website which works directly with SiteLink Web Edition and you are delivering full price and push rated units on the Internet via your website in real time. The results are in and thousands across hundreds of facilities have rented Storage spaces at the push rate online with no manager intervention.
Automation Leads to higher Rents
For one group, RapidStor delivered a significant component of the rental increase last year as customers simply rented online at the push rated space rate: there was no negotiation in the office, there was no frivolous discounts offered and the rent wasn’t given away by staff that may not have the confidence to stick to their guns and ask for the price wanted.
Sometimes it’s easy in a price negotiation to give the farm away to a customer when in reality all they were seeking was a Storage space.
Price is clearly not that the determinator for all rentals otherwise the sites achieving well over $400 per square metre per year would be empty. It’s quite the contrary.
Rate management software built into SiteLink Web Edition takes away some of the science that is needed with some simple assumptions based on your research you can easily increase rates for every new movie in and importantly make sure that the rates that are being paid by the existing tenants other right rates.
Rate Increases for All
If you have 100 or more 3 x 3 units and you increase the price of your 3 x 3 spaces by only five dollars per month, you are now discounting the other hundred of the rented 3 x 3’s by five dollars each, losing $500 per month, meaning you have to rent 100 spaces at the new rate to make up for the losses on the hundred that you have not increased the rates on.
The Tenant rate management tools built into SiteLink Web Edition will show you the value of these increases on existing tenancies. The secret with rent increases is not to be greedy – small increments regularly done work all the time and very few will move out for a few dollars change here or there. If you are enjoying high occupancy, these incremental increases add up to a significant amount of increased revenue.
If you need help with revenue management please Contact Us and we can show you the value of revenue management in SiteLink Web Edition, RapidStor and District Manager, three tools combined that deliver the very best in revenue management available today.