When was the last time you evaluated your rental revenue? Did you know you should be managing your storage rental rates at least every month? Depending on the circumstances, some operators even do this weekly. After all, managing rental rates regularly is the key to operating a successful self-storage business.
At the GASSA End of Year event, Anne Ballard spoke about significant 2020 and 2021 industry data and statistics. That's where I heard her say one of her favorite sayings, "go out there and raise that rent". There are many puzzle pieces that go into this statement, from occupancy rates and facility upgrades to your competition, but it's something that every single self-storage operator out there should be doing.
We all know that it takes money to run a business, and most business owners are faced with an increase in operational costs, taxes, and insurance each year. It's simple, these costs will continue to rise whether you're increasing your rental rates or not. Naturally, you should be adjusting your street rates and tenant rates to reflect these incurred costs at a minimum.
Adjusting Street Rates
Street rates are the storage rental rates you charge new customers, not existing tenants, based on supply and demand. To gauge if you're ready for a street rate increase or decrease, take a look at your occupancy percentage by unit type and unit size. Most management software systems have tools to help you with this process. See which of your units are occupied and what their prices are. Break those units into categories based on unit size and unit type. If any of these groups are rented at or above 85% occupancy, it's time for you to raise the street rate. When you have high occupancy, you need to be monitoring and adjusting your street rates weekly (yes, that often). While you may think that's overkill, being fully occupied isn't good for business and adjusting rates is necessary for optimizing your facility and maximizing NOI.
Adjusting Tenant Rates
Tenant rates are the storage rental rates you're charging current tenants. Over time, you'll want to increase your tenant rates to close the gap between them and your street rates. It's helpful to increase your street rates first and your tenant rates second. If a current tenant complains about a price increase, you can explain how the value of their unit has increased by showing them the street rates of similar units.
Tenant rate increases are most effective when implemented gradually over time. Consider implementing rent increases on a monthly or quarterly basis rather than all at once, annually. Managing your rental rates frequently helps prevent rapid increases, which typically goes over better with the customer. You should start with your oldest accounts and work your way up.
Consider using percentages for rate increases rather than flat rates. This helps target different unit sizes and unit types more appropriately. So, if a customer is renting two different units varying significantly in size and price, they won't have to pay the same flat rate for each unit. With any price increase, it's important that you and your staff are all on the same page and are well prepared to talk to customers and answer any of their questions and concerns.
IT'S ABOUT THE BEST VALUE, NOT THE CHEAPEST FACILITY
Can we say that louder for the people in the back? There's no doubt that the 2022 self-storage industry is highly saturated, but a facility's success all comes down to its location, offerings, and services. Unit rates have increased drastically since 2020, and it's important that your facility is keeping up with the competition.
Tenants want the best value and not the cheapest facility. We've seen firsthand that they're willing to pay more for features like pest control, electronic gates, and 24/7 access to their facility and unit. You should be regularly upgrading and renovating your facility to attract new customers, increase property value, and maximize your NOI. Not only will enhancing your property set you apart from the competition, but it will give you the ability to charge higher rental rates and bring in more revenue.
