By Alejandra Zilak

By Alejandra Zilak

ease-up projections are an integral part of any self-storage business plan. They ensure you have adequate cash flow, mitigate financial risks, and optimize the return on your investment. However, there are so many things to consider when making these projections, and which ones apply to your business depend on a long list of factors, including the target market, competition, and others that vary by product offering and geographical location.

Even if you’ve been in the industry for a long time, new trends and technologies will affect how you’ll perform by the end of next quarter. How can you know whether you’re on the right track? Before we tell you, it’s important to first understand how these projections have changed over time.

The self-storage industry has seen many changes since the beginning of the 21^st century. What was once mainly utilized by people with too many things is now a crucial component to help individuals navigate different stages of life, such as downsizing after the kids grow up, figuring out what to do after a divorce, or storing personal items after the death of a loved one.

Since most people go through a phase of life that requires the need for self-storage units, the demand for this type of facility has skyrocketed in the past two decades. The good news is that the need for extra storage space is expected to increase by 2029.

But back when the first of these facilities popped up, there weren’t many regulations. Operators didn’t have to worry about insurance hurdles or strict requirements when conducting lien sales. And since the industry wasn’t as prevalent in the early days, it was much easier to get funding for a project.

“Now you have to do your homework more thoroughly than before,” says Jim DiNardo, owner of J. DiNardo Consulting. “The reason is twofold: Not only is development more rampant and making most markets more competitive, but also because lenders require it.”

To secure financing, you must show competency in how you’ll operate the facility. While this will vary depending on whether you’re a startup or expanding an existing business, showing viable projections will ultimately determine how much you can borrow.

“There are four core factors that go into making an accurate lease-up prediction,” says Lauren Feeney, director of acquisitions at Trojan Storage. “These include the size of your building, market demand, visibility, product offering, and sometimes even seasonality.”

For example, if your business is in a college town, students may be looking for smaller, climate-controlled units, since they’ll want to keep their electronics and books from getting ruined by humidity. Due to the traditional school year, summer is the peak season.

“You must set internal benchmarks to what you think a building will do in a certain market,” Feeney adds. “You can do this accurately by truly quantifying the need for storage in a five-mile radius, how accessible and visible your facility is compared to the competition, and what void you are filling in the market with your product offering. You also have to take into account any additional factors that may change your monthly demand throughout the year.”

As with everything else, you need to make room for trial and error. Even if you’ve been around the block, market conditions may require slight changes to what has worked in the past.

Trojan Storage has multiple locations across six states. You would think that with their track record, they’d be able to conduct these projections in their sleep. However, Feeney attests to the contrary. “We operate four locations within seven miles of each other in San José. And even within such close proximity to each other, we’ve tweaked our approach based on each of the facility’s visibility, size, average unit size, and product type.”

DiNardo concurs. “You have to be careful to set expectations commensurate with the product type that you’re developing.” You must be mindful of how the facilities will be managed too. “If you’re competing against a large operator, you may not be able to rent up as quickly, simply because you don’t have the same management capacity, but you might be able to charge a little more and make up for it in other ways that a larger operator can’t,” he says.

For example, you could offer a more personalized customer service that larger enterprises aren’t able to do based on their volume of tenants. In fact, this is one of the aspects that keeps people coming back to smaller operators and referring their own contacts.

That said, personalization is a perk that should be ancillary to the product offerings and overall customer experience. The location of your operations is also relevant to how much this can help move the needle. “If you’re in a high-density neighborhood or market, like NYC or LA, it won’t matter as much,” states Austin Khym, director of acquisitions at Liberty Investment Properties. “It’s a service I need when I need it, and I want it done as quickly as possible. I just want access to the site. I just want it to be priced fairly and for everything to be seamless.”

Then there’s figuring out whether your marketing is effective. “Most people are looking in their phones for ‘self-storage near me,’” says Khym. “Depending on the market, you may have to focus more on pay per click (PPC) or search engine optimization (SEO). You may have to spend more on grassroot efforts so that people understand you’re in the market.”

As with most industries, artificial intelligence (AI) has been a game changer. “AI and using historic lease-up data will allow many more operators to accurately predict what could happen at your facility,” says Feeney. “These practices have become more algorithmic, precise, and fine-tuned over the last decade.”

But while AI makes things infinitely easier, it’s essential to remain on your toes. “There will always be factors you cannot plan for,” she adds. “For example, the COVID-19 pandemic, or if a brand-new facility is built close to you.” For the former, proceed with caution. “We like to err on the conservative side of lease-up underwriting to account for any unpredictables,” Feeney states. With the latter, offering incentives like referral bonuses or loyalty programs can help ameliorate the effects of a new competitor.

Barriers to entry and population growth and decline trends are also relevant. While researching this data is a given, it’s invaluable to become familiar with the landscape the old-fashioned way. “Nothing beats driving around and truly understanding your competition,” states Feeney.

Even with all the research, if you’re opening a new facility, be realistic about the space to be filled. “Gaining 4 to 6 percent monthly occupancy gain is a strong average range,” she continues. “But granted, 50,000 of net rentable square feet (NRSF) should lease up much faster than 120,000 NRSF.”

So set a monthly lease-up goal, and as you hit it, increase your projections accordingly. “The goal should always be in the realm of 90 to 93 percent stabilized occupancy,” Feeney says, “but there are certain markets where you will have much larger seasonal swings you must account for, and larger buildings will experience larger hits.”

Ultimately, while there are many variables to make reliable projections, they all require meticulous market research, being constantly aware of industry trends, and making the tenant experience as convenient as possible.