Section 13 • Market Conditions With development especially, but with acquisitions as well,
it is critical to understand as much as possible about the sup- ply/demand economics. The strength in self-storage operations throughout 2015 has been due in large part to the absorbable level of new supply that has entered the market over the last four years. Maintaining this equilibrium is the key to long-term prosperity for the industry.
State Supply Levels While the performance of an individual self-storage facility is more dependent on local market conditions, national, state or regional trends can be useful for benchmarks and comparisons to local trade areas. The State Saturation Levels Table 13.1 sum- marizes the rentable square footage per person for each state, as well as the national average.
The national average of 6.77 square feet per person is a
weighted average (total square feet divided by total population) rather than a straight-line average (the straight-line average of the U.S. market is 7.7 square feet per person). The weighted aver- age 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 overall. In other words, having 6.77 square feet per person across the U.S. does not mean that this is equilibrium for the industry on a nationwide, statewide, or market-wide basis. It is merely a statement that the size of the supply side of the U.S. market is 6.77 square feet per person.
MSA Supply Levels Tables 13.2a and 13.2b benchmark the national rentable square feet per person against the supply within the MSA. Again, it is not an indication of whether a market is oversupplied or under- supplied, nor is it a measure of equilibrium. It is simply a com- parative supply table by core based statistical area (CBSA).
The CBSA table can be used for comparisons and bench-
marking; however, it does not 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 dif-
ficult to induce from outside the local sub-market trade area, finite due diligence on a specific trade area is paramount to
134 Self-Storage Almanac 2016 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. Or, inversely, a market with apparent substantial excess demand might just have an existing average rate structure below balance.
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 and also being 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.
Analysis While it is critical that self-storage investors and developers per- form their own due diligence to their own standards, these mac- ro market statistics can be helpful benchmarks when identifying possible self-storage investment opportunities. Additionally, the market conditions within 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.
success. It is important to understand the general market char- acteristics 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 to understanding a local market is to survey all local competition within the trade area for rental rates, discounts and 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.
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