The self-storage industry has been on a steady growth trajectory for several years, with the Self Storage Association reporting that the U.S. self-storage industry generated over $39 billion in annual revenue in 2020. For investors and operators, this presents a golden opportunity to acquire undervalued assets that can offer significant returns. But how do you spot these hidden gems?
Here are some strategies and techniques to help you identify high-potential storage facilities.
- Demographic Analysis
One of the most effective ways to gauge the potential of a self-storage facility is by analyzing the demographics of its location. Areas with a growing population, high rental rates, and urbanization trends are prime candidates. According to the U.S. Census Bureau, regions experiencing population growth often correlate with increased demand for storage solutions.
- Competitor Landscape
Understanding the competitive landscape is crucial. Markets with limited competition or outdated facilities can offer a competitive edge. The national average for storage is around 8 sqft per capita. If a market has significantly less than this, it could indicate undersupply and potential for growth.
- Historical Occupancy Rates
A facility's past can often predict its future. By reviewing historical occupancy rates, you can gauge the asset's performance. Consistently high occupancy rates, even during economic downturns, can indicate a resilient and high-demand facility.
- Physical Inspection and Assessment
While data is invaluable, there's no substitute for an on-site inspection. Look for facilities that might be undervalued due to cosmetic issues but have solid structural integrity. Simple upgrades and renovations can significantly boost the asset's value.
- Technological Infrastructure
In today's digital age, a facility's technological infrastructure can be a game-changer. Assets that lack modern security systems, online booking capabilities, or digital access controls might be undervalued but can offer significant returns once these upgrades are implemented.
- Financial AnalysisDive
deep into the facility's financial records. Look for discrepancies or inefficiencies in expense management. Often, undervalued assets have areas where operational costs can be optimized, leading to increased net operating income.
- Local Economic Indicators
The broader economic health of the facility's location can offer insights. Areas with growing employment rates, new businesses, and infrastructure development projects can indicate a rising demand for storage solutions.
- Regulatory Environment
Understanding the local regulatory environment is crucial. Areas with stringent zoning laws can create barriers to entry for new competitors, making existing facilities more valuable. Conversely, regions with lax regulations might pose risks of oversupply.
- Expert Consultation
Engaging with industry experts, brokers, and consultants can provide insider insights. They can often point you to undervalued assets that might not be publicly listed or highlight potential pitfalls in seemingly lucrative deals.
- Customer Reviews and Feedback
In the age of online reviews, customer feedback can be a goldmine of information. Facilities with consistent negative reviews regarding management, pricing, or security might be undervalued due to these operational issues. Addressing these concerns post-acquisition can lead to increased customer satisfaction and revenue.
Identifying undervalued self-storage assets requires a mix of data-driven analysis, on-ground inspection, and industry expertise. By employing these strategies, investors can spot high-potential facilities that, with the right management and upgrades, can offer significant returns in the booming self-storage market.