Section 11 • Market Conditions
The State Saturation Levels Table 11.1 summarizes the rent- able square footage per person for each state, as well as the national average. The national average of 8.32 square feet per person is a weighted average (total square feet divided by total population) rather than a straight line average. The weighted av- erage essentially spreads the excess supply (from some markets) across the country so that it is artificially absorbed by excess de- mand (from other markets). Therefore, its relevance is strongest when defining the size of the overall self-storage universe as it pertains to the country as a whole.
The national average of 8.32 square feet per person is a weighted average
(total square feet divided by total population) rather than a straight line average.
In other words, having 8.32 square feet per person across
the U.S. does not mean that is equilibrium for the industry on a nationwide, statewide, or market-wide basis. It is merely a state- ment that the size of the supply side of the U.S. market is 8.32 square feet per person.
CBSA Supply Levels Table 11.2 benchmarks the national rentable square feet per per- son against the supply within the CBSA. Again, it’s not an indica- tion of whether a market is oversupplied or undersupplied, nor is it a measure of equilibrium. It is simply a comparative supply table by core based statistical area (CBSA). The CBSA table can be used for comparisons and bench-
marking; however, it doesn’t address local self-storage market conditions. Studies and research have shown that demand for a typical self-storage facility is local. On average, most facilities draw at least 75 percent of their tenant-base from within a three- mile radius. Moreover, as the industry continues its mainstream maturation and product awareness on its own grows the de- mand side of the economics, a greater percentage of the tenant base at a given facility will source from within a much tighter radius than three miles. This is especially true in urban markets and in high-density
suburban markets where tenants rarely come from outside a one-and-a-half-mile radius. Add to that the reality that demand for self-storage is difficult to induce from outside the local sub- market trade area and finite due diligence on a specific trade area is paramount to success. It is important to understand the general market characteristics within the CBSA and then reduce down the apparent demand-behavior within the micro local trade area specific to the subject property.
Location The first step in understanding a local market is to survey all local competition within the trade area for rental rates, discounts and
108 Self-Storage Almanac 2015
concessions, apparent occupancy, competitive amenities, loca- tion attributes, ease of ingress/egress, and gross supply. From this data, the rentable self-storage square feet per person for the trade area can be determined and compared to national, state, and CBSA benchmarks. The analytical conclusion will reveal the approximate supply/demand imbalance characteristics for that sub-market and will provide guidance relative to suggested rental rates, excess demand, and competitive positioning. The market is commonly described as undersupplied, over-
supplied, or in equilibrium. An undersupplied market has de- mand capacity for more self-storage product; an oversupplied market has excess supply (square footage); and a market in equi- librium is generally in balance.
Demographics Once a market determination is made relative to supply and de- mand, a demographic analysis can put the conclusion in final context. A market with apparent over-supply might just have a rental rate imbalance with rates being too high. Inversely, a mar- ket with apparent substantial excess demand might just have an existing average rate structure below balance.
While it is critical that self-storage investors and developers perform their own due diligence to
their own standards, these macro market statistics can be helpful benchmarks
when identifying possible self-storage investment opportunities.
A market with a high percentage of renters will tend to be more mobile, so capturing demand is easier if the subject site out-positions an existing facility. Or, in a market with high aver- age household income, price can take a second seat to conve- nience and amenities. In a market where existing rates are too high, if development costs allow a developer to sneak in under the competition relative to rental rates, grabbing demand can be easier with the newest facility in a sub-market being, in addi- tion, the lower cost provider. Having precise demographic information of the population within the trade area will provide perspective and enable a deci- sion based on the totality of the data. While it is critical that self-storage investors and developers
perform their own due diligence to their own standards, these macro market statistics can be helpful benchmarks when iden- tifying possible self-storage investment opportunities. Addi- tionally, the market conditions in the local trade area should be carefully analyzed and considered as the local market conditions have the most influence on a self-storage facility and ultimately usurp any conclusions reached based upon macro data.
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