The self storage industry is booming, with Forbes stating “The self-storage industry has a strong track record of a high return on investment for most facilities” and The Wall Street Journal reporting that “Storage facilities have rewarded investors more than many other types of real estate during the easing of COVID-19.”
However, as great an investment as self storage can be, it’s not wise to go in blindly. The self storage industry is very unique, and there’s a lot to learn before building a facility, especially if you’re new to the industry. This is where a self storage feasibility study comes in.
“From building the unit sizes your customers want, knowing your competitive strengths and weaknesses, projecting expenses and net operating income, self-storage feasibility studies take the guesswork out of your project,” writes the Self Storage Association.
What is a Self Storage Feasibility Study?
Just as the name implies, a feasibility study provides research that helps investors decide whether their self-storage business idea is feasible or not. It lets them know whether they can proceed with the project confidently, or whether they should be looking for opportunities elsewhere. While some investors may try to conduct this study on their own, it’s in their best interest to turn to a third-party self-storage consultant (plus, many banks and Small Business Association lenders will require it).
Are you thinking of building a self storage facility? A self storage consultant will provide you with their expert opinion on the financial viability of your planned property. The study estimates construction costs and determines viability based on size and location, local research (such as demand and competition), industry standards and trends, and more. The feasibility report may also include an estimate of what the facility might be worth once it’s built and rented.
Overall, a good self-storage market study should offer you a comprehensive view of the risks and the rewards of pursuing your project; it should help you decide whether your self-storage facility will produce enough revenue to generate a profit after taking care of debt, land costs, development costs, construction costs, and operating costs. Sure, the study will cost you – but it’s better to spend a little money on one at the beginning of a project and find out that your assumptions may be wrong than spending millions of dollars in development and find out when it’s too late.
Elements of a Self Storage Feasibility Study
Typically, a market for a self-storage facility encompasses a three- to five-mile radius. So, your feasibility study will include business and demographic information for that specific geographic area. The best studies (and the priciest ones) will generally include all the following elements.
- Current population. How many people live in that three- to five-mile radius? To break ground confidently, the rule of thumb is to look for roughly 20,000 residents in a rural market and 100,000 or more in an urban market.
- Population projections. Is the population growing, or shrinking? Of course, ideally, you want to be in a high-growth market or at least a stable one.
- Community/neighborhood analysis. How would the community feel about a new self storage facility? It’s important to understand if there would be push-back from the local government or even housing associations.
- Zoning. Are there any rules that dictate how property can or cannot be used? If so, would rezoning be an option?
- Site analysis. What are the strengths and weaknesses of the proposed site? For the site analysis, you’ll want to know if there is room for future growth and how safe the area is (based on crime statistics).
- Demographic analysis. Who lives here? Your report should look at the median income in the area (self-storage renters usually fall into the middle- to upper-income brackets) and the median age (tenants typically are in their early 20s to mid-50s).
- Daily vehicle traffic. Is the location visible? Most storage facilities rely on drive-by traffic to draw some of their customers. The best locations are situated at busy intersections where traffic has to frequently stop and idle!
- Competition. What other self-storage facilities are in your area radius? Are they independent, or a capital-rich REIT? The report should highlight others in the area, their occupancy rates and rental rates, square footage, unit mix, services and amenities, etc.
- Facility recommendations. What do I need to do to compete? Your report should make security, amenity, unit mix, construction materials, and other recommendations. For example, should you be offering Climate Controlled units? And how should you price them? The report should let you know.
- Economic analysis/projections. What will the future bring? This section should include projections for rental rates, income, expenses, operational costs, and property value. This is also known as “pro forma,” a method of calculating financial results using certain projections or presumptions.
- Investment overview. How long will it take me to lease-up my property? Will the property meet my investment objectives? What is an estimate of the construction costs? All of these questions should be answered in your feasibility report.
- Exit strategy. How will you exit the investment when the time comes? Your report should perform three pro forma evaluations: base case, pessimistic (worst case), and optimistic (best case).
As you can see, the length of a quality feasibility study can be well over 100 pages, and the most comprehensive ones may have a price tag of more than $5,000.
12 Questions to Ask a Feasibility Consultant or Firm
Before you’ve selected a self storage feasibility consultant or firm, you should be prepared with a lot of questions. If they’re truly interested in the job, they’ll be willing to answer them for you. Twelve questions to ask include:
- Can you provide me with a feasibility study you’ve done for another client?
- Are you familiar with the geographic area I’m looking to break ground at?
- Can I speak with any of your past clients?
- How much will the study cost?
- What will be included in the study?
- How many feasibility studies have you completed in the past? How many self storage feasibility studies have you done?
- Are you insured? With whom and for how much?
- Can you provide a certificate of insurance for errors and omissions or professional liability?
- What kind of formal or informal training do you have?
- How does he stay in touch with the real self-storage world?
- How long will it take to get the report?
- Do you work alone or use other expert resources to get the job done?
How to Obtain a Feasibility Report
So you’ve decided you want (or need) a feasibility report. Who do you turn to? You might use a friend or colleague's referral, or visit the exhibits of companies that conduct feasibility studies at a tradeshow. You could do the ol’ Google search, or look for firms that do more than advertising, and actually contribute to the industry by writing informative information or holding seminars or webinars (if they’re quoted or referenced in industry publications, even better).
Of course, there’s another option – joining the Storelocal® cooperative! Once you become a member, you can use one of our vetted, expert consultants! Storelocal is the only self storage cooperative in the country, consisting of a group of self-storage owners and operators who work together to increase their competitive advantage in the marketplace. By joining forces, they are able to leverage new and existing resources, such as self storage consultants, to lower operational costs and increase profit – all while remaining independent. Interested in learning more about our cooperatives? Check out StoreLocal today!