From: 3 THINGS IN THE SELF-STORAGE WORLD
A brief newsletter from Box Pro in which we share 3 things in or about the world of self-storage and all the images are AI-generated.
"the great self storage pricing wars of 2023"
1. A race to the bottom on street rates
As demand has softened, many markets are seeing a race to the bottom in street rates driven largely by the REITs' aggressive customer acquisition strategy. In many cases, they will slash street rates dramatically to get customers in the door, then aggressively raise their rates within months. I don't know about you, but I've heard from two separate friends in the last week who rent units from a REIT who has seen their rates DOUBLE within 4-5 months of renting. These REITs obviously have a lot of data to support their pricing strategies, and don't seem to have any problem weeding out their price-sensitive tenants, but I firmly believe their reputation will be damaged in the long run.
See what Ahmet Kuyumcu of the revenue management firm, Prorize, has to say about the pricing wars here.
2. How do I know where my market rates are if everyone is undercutting each other?
It's easy to see how much facilities are charging for street rates, but we don't know how often competitors are increasing rates and by how much. So when a market has a race to the bottom of street rates, it can make things complicated for underwriting projects. If you are underwriting a new market, I recommend taking a wide sample of competitor rates (and take REITs pricing with a big ole grain of salt), and looking at trailing 12 month rate history with a program like TractIQ, Radius+, or StorTrack. With the context of historical street rates, you should be able to understand if current street rates truly indicate where the market is or if your market is currently in a race to the bottom.
3. The magic of move-in specials
As Ahmet Kuyumcu from Prorize discusses, the best way to combat the pricing wars without damaging your reputation by cranking rates up too fast is to offer specials. By offering move-in specials (first 1, 2, 3 months free or discounted, for example) you get to maintain your strong rental rates while still staying competitive with other facilities. For example, a tenant moving in might see that their unit is $100/mo, but they are getting 3 months for 50% off. To the tenant, they get a good deal now, and they have clear expectations for the future. They might not like their rate going from $50 to $100 at the end of month 3, but they knew it was coming. If your street rates are $50 (with no promotions) then you increase the rate to $100 after 3 months, your tenant is probably not going to be happy. You doubled my rent after 3 months!!! In both scenarios, the tenant pays $50/mo for 3 months then jumps to $100/mo, but in the first scenario, the tenant knew what to expect, and in the second, it was a (not pleasant) surprise. Which tenant is more likely to refer a friend? (And which tenant is more likely to tell their friends to steer clear?)
If you have any comments/questions or need a feasibility/market study, reply to this email, message us here, or call/text me at 801-839-5844.