By Brook Bland

he self-storage sector experienced its peak performance in 2020 and 2021. However, amidst rising interest rates, increased supply, and reduced demand, owners are now exploring new strategies to enhance net operating income (NOI) and profitability in today’s market.

Offering new sources of ancillary revenue, such as smart units, is a strategy many owners and operators are adopting to differentiate from local competition, increase revenue, and enhance visibility across the facility. Today’s self-storage smart unit solutions include offering tenants interior monitoring, door sensing, and automated locks through familiar mobile phone interfaces like texting or mobile apps.

Smart unit monitoring is also growing in importance to tenants and is a feature they value investing in. Unit monitoring was ranked one of the two fastest-growing features tenants are willing to pay more for according to the SSA’s 2023 Self Storage Demand Study. Today’s modern tenants value the peace of mind and convenience that smart units provide.

Owners and operators such as Darren Kelley, president of Right Move Storage, and Max May, COO of Easy Stop Storage, have adopted smart units and seen significant success and tenant satisfaction. Let’s dive into the various benefits of smart units across both of their portfolios.

Kelley highlights how the industry has transitioned from a period of high demand and limited supply to one characterized by increased competition and operational complexities. Traditional methods of maximizing NOI through rate management are no longer sufficient. Instead, differentiation has become critical in retaining a competitive advantage.

“Differentiation has been my goal from day one,” says Kelley, “to separate myself so that I stood out from competition. And I have been really focusing on ancillary revenue growth to combat the fixed expenses that continue to go up. Smart units have been a savior to us in countering the rising expenses, non-controllables, taxes, and insurance that we’ve had.”

Similar to Right Move Storage, Easy Stop Storage was facing softening revenue and margins in an environment of increased competitive pressure, falling rates, and increasing supply. Looking for ways to differentiate locally, May decided to pilot smart units in 2022.

“One of the hard things about storage is finding additional revenue streams,” says May. “What is going to set you apart from your competition down the street?” Having seen measurable success and high tenant satisfaction during the initial pilot, May has since rolled out smart units across all 25 of Easy Stop Storage’s properties. After a year and a half of original implementation, Easy Stop Storage is witnessing a 97 percent adoption rate of smart units across the portfolio. By promoting smart units through their website and in-store marketing assets, their properties have successfully differentiated themselves from local competition and positioned themselves as smart facilities.

In the competitive landscape of the self-storage industry, maintaining profitability amidst market fluctuations and declining rates among real estate investment trusts (REITs) poses a significant challenge. Operators like Kelley and May have successfully navigated these challenges by leveraging smart units to not only differentiate from competitors but also to increase ancillary revenue.

Kelley underscores the critical role of ancillary revenue in offsetting declining market conditions. “It just becomes a race to the bottom,” he says. “You see it with some REITs dive bombing due to their financial situation. Ancillary services like smart units have been pivotal for us in maintaining stable profits.”

This strategic approach ensures that fluctuations in rental rates or economic downturns do not erode profitability, as revenue from smart units contributes directly to NOI.

Kelley further illustrates the financial impact of smart units and the 96 percent adoption rate of smart units across his portfolio. “We have a property that is 70 percent penetrated with smart units, generating over $6,000 in revenue monthly from 560 units rented at an additional $12 each,” he says. This implementation has resulted in an annual increase of more than $72,000 at that location alone, with Kelley noting a swift 12-month payback period per smart unit device. These successes have significantly boosted profits across all Right Move Storage locations.

Beyond the financial benefits, smart units significantly enhance the tenant experience by connecting tenants to their valuables 24/7. Facilities like Right Move Storage and Easy Stop Storage have seen great success in offering smart units to their tenants, with average conversion rates of 96 percent and 97 percent, respectively. Kelley emphasizes the tenant appeal. “The customer is immediately connected to their unit and can control the defense of their goods,” he says. “That’s something they’ve never had until smart units.”

Kelley further elaborates on the value smart units bring tenants. “Overall, I think it’s bringing peace of mind to our customers; they have control over protecting their goods. That does help in terms of winning new rentals and getting people to feel good about storing their valuables at the property.”

After surveying over 2,000 random tenants of Right Move Storage, responses showed that over 70 percent of tenants were advocates of the smart unit service and would recommend it to a friend. A tenant named Michelle P. recently reviewed the service after renting from a location in Spring, Texas. She says, “It is a great feature. If someone ever tried to break into my unit, I would be notified immediately, and it also notifies the office. I definitely recommend it.”

The utilization of smart technology at Easy Stop Storage has also led to strengthened customer loyalty and improved tenant satisfaction, with tenants expressing appreciation for the enhanced customer experience. May says, “Tenants love it for the sense of peace of mind. It creates that umbilical cord for the tenant to their units, so they always know what’s going on.”

StorageDefender Inc., a provider of smart units as a service for the self- storage industry, has seen across their base of facility partners that 78 percent of tenants who rented a smart unit would look for smart units at their next facility. This number is expected to increase as smart unit monitoring becomes an anticipated feature in the industry, especially among younger generations.

As owners and operators navigate fluctuating demand, increased supply, and evolving consumer preferences, smart units have emerged as a key solution for enhancing profitability. By leveraging smart units, operators can not only differentiate their facilities but also generate substantial ancillary revenue streams that bolster NOI.

The success stories of industry leaders like Kelley of Right Move Storage and May of Easy Stop Storage underscore the transformative impact of this technology. These operators have not only increased revenue but also elevated tenant satisfaction by providing enhanced protection and peace of mind.

Looking ahead, the widespread adoption of smart units is set to redefine industry standards, with tenants increasingly prioritizing facilities equipped with advanced monitoring and a personalized experience. By investing in smart units, operators not only future-proof their facilities but also enrich the tenant experience, ensuring long-term success in an ever-evolving market.