When new self storage competition is planned for your market, it can be a scary time for an operator. New competition will always have an impact on your business. Questions arise, like: what impact will they have on your operations; will you lose occupancy; what will their pricing be? In this blog, I’ll cover what our experiences have been with new self storage competitors and what you can do to prepare for competition entering your market.
Having spent 14 years in operations, I’ve seen new competitors use a variety of options once they’ve opened for business. But there are four main strategies you can expect from them:
- No new renter specials and vacant unit pricing maintained at pro forma.
- Aggressive new renter specials but hold vacant unit pricing to pro forma.
- No new renter specials but low vacant unit pricing strategies.
- Aggressive new renter specials and low vacant unit pricing.
Having new competition is actually a good thing, especially if you’re a self storage operator in a market where a REIT or large operator enters the market. When you have a self storage REIT or large operator enter your 3 to 5 mile market, it could be a positive for your property’s long-term revenue growth. However, you will feel some pain while you’re surviving the competitor’s lease up period. A REIT or large operator will enter a market, complete their lease up, and then drive rates upwards. Publicly traded companies have an obligation to their share holders to provide growth in stock price. One of the ways they do this is through street rate manipulation. Vacant unit rates can move as often as three or four times a week at a REIT held property. The sole reason for this is to fill space that becomes vacant and to increase rates on highly occupied units. Consistent pricing manipulation can frustrate a smaller operator who is actively involved in a pricing and occupancy war. Don’t get frustrated! You need to keep in mind that rates are going to grow over time and the addition of a savvy operator in your area can be a long term positive!
So, what should you do when you learn about new competition being planned in your market? It’s quite simple. You need to put your plan in place to increase occupancy, manage revenue, review day to day operating strategies, and address capital improvements that improve curb appeal. Here’s some additional information that expands upon each of these topics:
Occupancy Gains & Revenue Management
- How am I currently priced in comparison to the market?
Adjust rates to market average. You don’t want to be the high-priced facility when a new competitor comes to the market. If, when they open, they are priced significantly under market, I recommend not adjusting your rates. You do not want to get into a race to the bottom. Let them lease up first. Ultimately, you want all of your competition to be highly occupied. This is what drives market rate.
- Where is my existing vacancy?
Look closely at your self storage unit mix. Identify the sizes that have the highest vacancy. Immediately implement an occupancy-based pricing strategy to fill those units fast prior to the new competition opening. Lower prices and increase discounting until 90% occupancy is achieved on low occupancy unit sizes.
- Is any of the vacancy in my cash cow units?
Cash cow units are those sizes that have the largest impact on your revenue. For example, if you have ten 10x20s vacant at $150 a month, that is $1,500 in monthly revenue; versus ten 5x5s at $40 a month, which are only worth $400 in monthly revenue. Those 10x20s are your “Cash Cow” units and you need to concentrate on filling those self storage units prior to new competition opening up.
- Is your site staffed correctly?
Do you need to change your office hours and hire additional help?
- Do I have the right management team?
This property manager is the most important person in your business. He or she is the face of your company. When new competition opens up, you want to minimize the reasons that any of your customers rent with them instead of you. They will already have the newest product on the market…don’t let them have the best staff, also!
- Identify and correct all maintenance issues.
This is very important. You want your existing customers to be happy. You want them to appreciate the fact that the site is well kept and maintained at all times. The new competition is going to look better than you by default. Shiny new buildings, newly finished site. You’re fighting an uphill battle, but you can even the odds if you spruce up your self storage property. Do things like improve the landscaping, paint doors and buildings, fill and repair asphalt issues, seal coat asphalt, improve signage, add ornamental fencing to the front of the property and renovate the office.
At the end of the day, facing new competition is tough for any self storage operator. However, rather than think of the negatives of new competition, look at the long-term benefits and prepare yourself properly. Follow the steps above and have someone put a second set of eyes on your operations. Give us a call today! Our team would be more than happy to complete a free and confidential in-person valuation for you. We will offer advice on ways in which to compete more effectively with new self storage competition that’s entering your market.