Like any investment, it's essential to understand the key performance indicators (KPIs) for self-storage to maximize returns and manage risks effectively. This article will delve into some critical KPIs for self-storage investments, such as occupancy rates, net move-in rates, rental income, expenses, and more.
Occupancy rate is one of the most fundamental KPIs for any self-storage facility. It measures the percentage of available storage units or space that is currently rented out to tenants. According to the Self Storage Association, the national average occupancy rate was approximately 92% as of 2020. A consistently high occupancy rate indicates strong demand and effective management.
Net Move-In Rate
The net move-in rate is another essential KPI. It calculates the net change in occupancy over a given period by taking into account the number of new tenants (move-ins) and the number of departing tenants (move-outs). A positive net move-in rate signifies business growth, while a negative rate might indicate a problem requiring attention.
Rent Per Square Foot
The annual rent per square foot is a measure of revenue efficiency. It's calculated by dividing the total rental income by the total square footage rented out during the year. This KPI can be used to benchmark your facility against others in your market and helps in making pricing decisions.
Number of New Leads
The number of new leads shows the interest in your facility and is a direct reflection of your marketing efforts. More leads typically translate into more potential customers, although the quality of these leads is also important to consider.
Rental income is the total revenue generated from renting out storage units. It's a straightforward indicator of a facility's financial health. Increasing rental income over time often points to successful operations and potential for growth.
Operating Expenses and Expense Ratio
Operating expenses include all costs associated with running the self-storage facility, excluding mortgage or loan payments. The expense ratio, calculated by dividing total operating expenses by total income, provides insight into the facility's efficiency. According to the Self Storage Association, a well-run facility should have operating expenses between 25% and 40% of gross potential income.
Debt Coverage Ratio (DCR)
The Debt Coverage Ratio measures the ability of a self-storage business to cover its debt obligations. It's calculated by dividing the Net Operating Income (NOI) by the total debt service. Lenders typically look for a DCR of at least 1.25.
Net Operating Income (NOI)
NOI is a critical profitability indicator. It's calculated by subtracting operating expenses from rental income, not including any loan payments. A higher NOI indicates a more profitable facility.
Cash on Cash Return
Cash on Cash Return measures the annual return the investor makes on the cash invested, calculated by dividing the cash income by the total cash invested. It's a useful measure of the investment's performance and can be compared to other investment opportunities.
By paying close attention to these KPIs, investors can make informed decisions and maximize their returns in the self-storage industry. Remember, monitoring these indicators should be an ongoing process, not a one-time event.