Self storage businesses have witnessed a remarkable surge in profitability in recent years, fueled by a growing demand for storage space across various demographic segments. In America alone, the Wall Street Journal reported that profits in self-storage businesses increased multifold during the COVID pandemic, and it has only been growing ever since.
High borrowing costs for storage construction mean that there will inevitably be a demand for self storage options as well. This increasing demand has been further amplified by the rise of urbanisation, changes in lifestyle, and the expanding e-commerce sector.
For investors and entrepreneurs looking to capitalise on this trend, understanding the key factors that contribute to the profitability of self storage businesses is crucial. Let’s find out: Are self storage businesses profitable for real?
Individuals and families are downsizing their homes and seeking temporary storage solutions during relocation or renovation. This growing demand has created a lucrative market for self storage businesses. 64% of people in the UK owned or occupied a home in 2022, a market where affordable self storage solutions would thrive.
The profitability of a self storage business is heavily influenced by its location, facility size, and the range of services it offers.
A strategically located facility, close to city centres and major neighbourhoods, is more likely to attract customers. Additionally, offering a variety of storage unit types and sizes can cater to a broader customer base.
Ancillary services such as moving supplies, packing materials, and insurance can also generate additional revenue streams. People prefer a one-stop solution to make their storage experience hassle-free.
Economic growth and demographic shifts also play a significant role in boosting the demand for self storage units. As urbanisation continues to increase, the need for storage space in densely populated areas grows.
Similarly, changes in lifestyle, such as the rise of minimalist living and the popularity of experiences over possessions, have contributed to the demand for self storage solutions. 2021 was also the year people took to minimalism again, which meant that there were a lot of items owned by people that needed to be put away somewhere.
Offering a range of unit sizes and types can cater to different customer needs. For example, larger units may be suitable for storing furniture or vehicles, while smaller units may be ideal for personal items or documents. Having a variety of unit options can help attract a broader customer base.
Maintaining high occupancy rates is crucial for helping a self storage business be profitable. An empty unit generates no income, so it's important to actively market available units and ensure they are rented out quickly. Offering incentives such as discounted rates for long-term rentals or referral bonuses can help boost occupancy rates.
Improving operational efficiency is key to reducing costs and increasing profitability. This includes optimising staffing levels, streamlining processes in your business, and investing in technology to automate tasks related to things like allocating units to customers, simplifying payments for them, and so on. By improving efficiency, self storage businesses can maximise their bottom line and ensure that their focus stays on the key offering.
Feeling intrigued by how these businesses turn a profit? Buckle up, because we're about to break down the financial metrics that shine a light on their success.
Net Operating Income (NOI) is a key financial metric used to evaluate the profitability of a self storage business. It is calculated by subtracting operating expenses from gross rental income. A high NOI indicates a profitable business.
Cash-on-Cash ROI is a measure of the return on investment based on the amount of cash invested in the business. Capitalization rate, on the other hand, is a measure of the expected return on investment based on the property's current market value. Both metrics are important for investors as they indicate the potential return on their investment.
Self storage facilities typically have higher capitalization rates compared to other real estate types, according to multiple sources. This is because self storage properties require lower maintenance costs and have lower vacancy rates, making them a more attractive investment option for investors seeking higher returns.
Like any business venture, there are hurdles to jump over. Let's take a closer look at some of these challenges.
Finding qualified employees and ideal locations for self storage facilities can be challenging. Hiring and retaining skilled staff is crucial for providing excellent customer service, while finding locations that are convenient and accessible to customers is essential for attracting business. While self-storage businesses do not require the staffing that larger real estate companies might, you’ll still need a capable team that can handle logistical and administrative issues that customers may potentially face.
Ensuring the security of the storage units and the facility requires ongoing investment in security measures. This includes installing security cameras, gates, and fences, as well as implementing access control systems to prevent unauthorised entry. Since multiple people are entrusting your location with their belongings, this is crucial to maintaining a healthy business that customers can come back to.
Meeting regulatory standards and obtaining necessary permits can be complex and time-consuming. Self storage businesses must comply with local zoning laws, building codes, and safety regulations to operate legally. Consult with Wigwam to find out what the zoning laws for areas in the UK are and which ones apply to you.
The UK Government offers several loan schemes for small businesses, such as the Start Up Loans scheme. These loans are designed to help new businesses get off the ground and can be used for various purposes, including starting a self-storage business.
Self-storage businesses can also explore other financing models, such as traditional bank loans, or private equity, to secure funding for expansion or operations. Finding a partner for a self-storage business is also not a bad idea, given how lucrative the business is and how easily you can scale it!
The digital age has had a profound impact on self storage businesses and profitability, significantly influencing their profitability and operational strategies. One of the most notable impacts is the increased demand for storage space driven by e-commerce and online shopping.
As more consumers shop online, businesses require additional space to store inventory, leading to a surge in demand for self storage units. This trend has been further accelerated by the rise of remote work and the sharing economy, which have created a need for temporary storage solutions for individuals and businesses alike.
Using technology for management and operations can improve efficiency and customer experience. For example, implementing self-storage management software can help automate tasks such as rental agreements, payments, and unit tracking, saving time and reducing errors. SiteLink, for instance, is designed specifically for the self-storage industry. It offers features such as online reservations, automated billing, tenant management, and reporting tools. StorMan is another popular management software used by self-storage businesses worldwide.
Maintaining a strong online presence and implementing effective marketing strategies can help attract customers. This includes using social media, search engine optimization (SEO), and online advertising to reach potential customers and promote the business. This ties back to what we wrote about the digital age; customers prefer looking up businesses on the web first, and this applies to a self-storage business as well.
Offering excellent customer service and also introducing loyalty programs can help retain customers and generate repeat business. A program around discounted storage spaces resulting in one free month of storage, for instance, would definitely do well with your customers. Also of paramount importance is providing a clean, safe, and secure facility, as well as offering convenient payment options and flexible rental terms.
In conclusion, self storage businesses are profitable, and provide a resilient investment opportunity for investors and entrepreneurs.
With careful planning and strategic management, self storage businesses can thrive in this growing market. As exemplified by Wigwam Storage, focusing on exemplary customer service and secure, easily accessible storage solutions can pave the way for success in the growing self-storage market.
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