DAVID FRENCH

here is a version of the self-storage business that works extremely well at scale. Centralized operations, standardized processes, algorithmic pricing, and leaner staffing models spread across multiple locations. In the right markets, with the right asset profiles, that approach produces real efficiency and real returns. The large public operators have built sophisticated businesses around it, and those businesses perform.

That said, there are markets where that model does not translate and where the assumptions built into it become liabilities rather than advantages. Secondary and tertiary markets are where you find that boundary most clearly, and it’s where operators who have designed their businesses around scale start to run into problems that scale alone cannot solve.

In major metros, demand density covers a significant amount of operational imprecision. High population turnover, consistent apartment churn, and a constant stream of life transitions mean that customers are always entering the market. A facility that is not optimally managed can still perform reasonably well because the underlying demand is strong enough to compensate for gaps in execution.

Secondary and tertiary markets do not offer that buffer. The customer base is smaller, the demand pool is thinner, and the margin for operational neglect is much lower. Poor lead follow-up, inconsistent staffing, deferred maintenance, weak local visibility—in a primary market, these issues might show up gradually in the numbers. In a smaller market, they show up quickly, and they are harder to recover from because the reputation effects travel faster in a tighter community.

The REIT cost model is not built for that kind of operational environment. Their expense structures are designed around standardization and efficiency at scale, which in practice means reducing labor, centralizing customer interactions, and managing properties by process rather than by the specific conditions of the local market. In primary markets, that works. In secondary markets, it tends to produce facilities that are technically operational but not well operated.

Public companies also face consistent pressure to maintain margin across their portfolios quarter after quarter. That creates an incentive to cut costs at the property level that does not always align with what a specific facility in a specific market actually needs. The asset gets managed to hit a number rather than to perform at its ceiling.

One of the most common cost-reduction strategies among large national operators in secondary markets is splitting property managers across multiple locations. A single manager covers two or three facilities, driving between them throughout the day, handling customer interactions remotely when they are not on site, and trying to keep several properties running at once. On a labor cost spreadsheet, this looks like efficiency. On the ground, it produces something closer to chronic understaffing.

The practical consequences compound over time. Vacant units sit unrented longer because nobody is consistently walking the property, following up on leads in real time, or engaging with prospective tenants the way an on-site operator would. Delinquencies drift upward because collections become less personal and more automated. Maintenance issues accumulate because there is no one accountable for noticing them quickly. Security problems go undetected longer. The facility starts to feel less cared for, and customers notice that immediately, particularly in smaller markets where people still expect a real local presence and a real person they can talk to.

The irony is that the labor savings that make this model attractive on a spreadsheet often end up creating operational drag that hurts revenue and retention. The cost reduction is real. The revenue cost of that reduction is frequently underestimated.

The operational playbook for a facility in a secondary or tertiary market is genuinely different from what works in a top-10 metro, and operators who try to run both with the same approach tend to underperform in one of them.

In smaller markets, self-storage is more relationship-driven and more reputation-driven than it is in dense urban environments. Word of mouth carries more weight because the customer base is smaller and referrals travel faster. Community visibility matters more. Customer service matters more because repeat interactions with the same customers are the norm rather than the exception, and how those interactions go shapes the facility’s standing in the market over time.

Expense management is also more consequential in these markets. In a primary metro, strong demand can mask the financial impact of operational inefficiencies for a period of time. There is less cushion in a tertiary market. Every occupancy loss, every payroll decision, every deferred maintenance item has a larger proportional impact on NOI, and the feedback loop between operational quality and financial performance is tighter and faster.

That requires a management approach built around attention and adaptability rather than standardization and scale. You must be willing to staff differently, market differently, price differently, and make decisions based on what is actually happening in that community rather than what a national template says should be happening.

When STORE competes for a management contract in a secondary market against a national operator, the conversation with the owner is usually about alignment of incentives and operational focus. Large operators are very good businesses, but they are optimized for consistency across large portfolios. Their systems are built to produce repeatable results at scale, which is not always the same thing as maximizing the performance of one specific asset in one specific market.

The case we make is that secondary and tertiary markets reward operational attention in ways that do not show up evenly across a large portfolio. An owner with a facility in a smaller market is not best served by a management partner whose primary competitive advantage is the ability to run thousands of locations efficiently. They are best served by someone who will treat their asset as its own operating challenge, staff it appropriately for the local market, make pricing and marketing decisions based on actual local conditions, and stay close enough to the property to catch problems before they become expensive.

We have taken over facilities in secondary markets after national operators, and the pattern is fairly consistent. The issues are rarely catastrophic. They are cumulative: deferred maintenance, soft occupancy despite reasonable market fundamentals, weak lead follow-up, and inconsistent customer experience. When you restore real operational presence, performance tends to recover faster than owners expect, because the underlying market demand was there the whole time. What was missing was someone paying close enough attention to capture it.