3 things about self-storage I've been wrong about

As with most things in self storage, my opinions have changed a few times over the years. Here are three things I used to feel pretty confident about that I’ve since had to rethink.

1. I thought traffic mattered a lot, then I thought traffic didn’t matter, now I think traffic matters again (up to a certain extent)

When we first got in the business 15 years ago, we tried to pursue the Public Storage route of treating self storage like a retail business, thus targeting only really high-traffic sites—say, 20,000+ AADT. As distressed opportunities for low/no-traffic sites began presenting themselves, we decided to experiment with them, relying instead on heavier online marketing.

We quickly realized that the low-traffic sites actually kept up with our high traffic sites, and thus stopped prioritizing high traffic sites altogether. Throughout the Covid years, we thought we were geniuses. Little did we know that everyone in self storage also felt like geniuses at the time.

As demand slowed, our new developments with little traffic clearly struggled more than our new developments with higher traffic. But traffic was not the biggest indicator separating the sites that struggled from the ones that didn’t.

Put another way, the general trend was, the more traffic a site had, the better it fared during the slowdown, but it wasn’t true for every site. A couple of our toughest sites during the slowdown also had some of the highest traffic in our portfolio.

Now in our site selection, we treat traffic as a secondary factor—more as a checkbox item—rather than a primary factor. In other words, we won’t necessarily weigh a site with 40,000 cars that much more than one with 5,000 cars.

So what does really matter?

2. Population matters more than a market being over/undersupplied

I used to think the supply/demand calculation was the end-all statistic for proving that a market was ripe for storage development. As we have tracked our sites over the years, and being exposed to hundreds of different markets every year doing feasibility studies, I’ve shifted my opinions on the trusty old square-feet-per-capita metric.

Again, this is driven by the fact that some of our absolute best performers are in markets with 18+ SF per capita—the type of market that would bring a feasibility consultant to tears.

Of course, we still calculate supply and demand, but we treat it as a secondary factor. If everything else for a site is good, we won’t let an oversupplied market kill the deal. The only real caveat is if a significant portion of the market’s supply is in lease up. We’d rather not compete with other lease-up properties if possible.

Higher population matters more than almost anything else. One of the most consistent threads in our analysis was population: in general, the higher the population, the better the site fared during the slowdown.

3. You can’t rely on sky-high rents

About two years ago, I underwrote a project in a large Western market that looked fantastic on paper. The existing competition was achieving strong rents, the deal penciled, and it felt like there was plenty of room for a new facility.

I recently revisited that same project, using the exact same comp set. Current advertised rents were roughly 25% lower than they were two years ago. The project that penciled before no longer does.

That does not necessarily mean the original deal was bad. Rents may recover, and a great site can still outperform the market. But it is a good reminder that you cannot underwrite a new development based on the highest rents the market achieved during an unusually strong period and assume those numbers are permanent.

When you are underwriting a deal, do not just pull the current advertised rates and call it good. Look at current specials, historic T12 achieved rents, and the direction rates have been moving. If you have access to TractIQ or StorTrack, use it. And call the competitors yourself—sometimes a quick conversation will tell you more than a rate survey ever could.

The point is that current rates are only a snapshot in time. Historic T12 achieved rents give you a much better sense of where the market has actually been—and a more grounded basis for projecting where rates may settle over the long term.