What’s the Worth of Your Self-Storage Asset? Why It’s Important to Know and Contributing Factors

As an owner or investor of a self-storage business, it can be easy to get caught in the weeds of operation: staffing issues, repairs and improvements, marketing campaigns, performance metrics, rental-rate management. It’s quite a lot. But you should never lose sight of one critical business factor: the value of the asset.

Understanding what your property is worth is essential to making smart decisions. For example, does a refinance opportunity make sense? Should you invest in value-add initiatives?

Facility valuation reflects the state of the self-storage market and where your business fits within it, however many owners and investors don’t have their finger on the pulse. As you’re monitoring your revenue and expenses, occupancy and rental rates, remember that it’s just as important to know the current value of your asset. Let’s look at some factors that influence it.

Common Factors That Impact Self-Storage Value

Many factors influence the value of a self-storage facility. As with other real estate classes, one of the biggest indicators is data reflecting comparable transactions, in other words, the marketing or trading of similar properties in the area. An industry real estate professional can use this information to compile a comprehensive underwriting analysis. This study should also consider the following aspects of the submarket, defined as the three- to five-mile radius from your property:

Rental rates
Operating history
Square feet of storage per capita
Population density
Average household income
Return metrics sought by potential buyers

Due to the nature of the self-storage industry, macro- and micro-economic factors also drive significant swings in facility value. For instance:

When federal interest rates climb, asset values tend to fall. The state of the housing market, an unstable economy, high unemployment rates, and other national economic and political factors also adversely affect values.
An oversupplied submarket typically results in declining occupancy rates, which in turn causes property values to decline.
As average rent rates climb, values follow.
An uptick in local population causes value to increase, as the more consumers and homeowners are in a submarket, the more potential renters there are.
Derailed management practices also impact self-storage value. Poor management inevitably leads to less cash flow and lower occupancy.

Ways to Increase Self-Storage Asset Value

As you can see, there are many external valuation factors that are outside of your control as a self-storage owner and investor; however, there are also many initiatives you can implement to move things in a positive direction. Here are several to consider:

Add more space. Building in today’s market is often cheaper than buying existing product. If expanding your self-storage property is possible, the return on investment may be worthwhile. Even the addition of portable units can boost revenue.

Capitalize on outdoor space. Are boats, RVs and other vehicles popular in your market? Often, the owners of these “toys” lack a place to park them. If you have a vacant parking area or other unused land, this can be a quick way to add fresh revenue to your business.

Increase security and lighting. Customers are seeking storage facilities that offer a safe environment for themselves and their belongings. Premium security leads to top-of-market rents.

Improve curb appeal. What kind of first impression does your property make on potential renters? Is it welcoming and inviting? Is it neat and clean? Customers want a clean environment with a cosmetic shine. These kinds of properties have a better chance of capturing new renters at a higher rate. Conduct regular audits to assess your site’s overall look and take note of any problem areas.

Stay on top of maintenance. Neglecting a property and delaying maintenance and repairs typically results in more complex problems, damage and costly upgrades. Plus, proper upkeep contributes to positive curb appeal.

Be seen. Are trees or other obstacles interfering with your signage and visibility? Is additional lighting needed to illuminate the property? Are the entrance and exits clearly marked? While more renters are first discovering self-storage facilities online, having a strong physical presence is still important.

Maximize the digital marketplace. Do you have a strong online presence? Is your website appearing in search results? How popular are your social media pages? Are there any page errors on your digital platform? Being current, correct and consistent online is vital to maintaining good ranking and luring prospects.

Modernize. What technologies can benefit your customers? How can automation streamline your day-to-day self-storage operation? Today’s customers are seeking convenience and self-serve options. If you don’t offer them, they’ll find another property that does.

A Self-Storage Valuation Check-Up

With news of a 50-basis point decrease by the Federal Reserve and some positive economic tailwinds in the near future, self-storage values are expected to increase over the next 12 months. Given the myriad of ever-shifting influences, getting an annual opinion from an industry broker is a wise move. At a minimum, a comprehensive assessment should include:

Sales
On-market and rent comparables
A pro forma outlining your property’s current performance
Potential value-add initiatives to be deployed by the current or future owner
An opinion of the site value in the current market

Certain factors might warrant a more frequent check-in. For example, sites that expand tend to rapidly increase in value. Often, they were well-occupied and high-performing beforehand, and now the additional units are driving increased occupancy and profitability. Hyperactive properties like these should have a valuation check every three to six months due to short-term fluctuations. Meanwhile, new-to-market properties that are still stabilizing and building occupancy should aim for a bi-annual assessment.

Right now, self-storage values are fairly stable, with some assets slightly declining. Why? Most of the fingers point to the fallout from high interest rates and the lack of consumers moving or buying houses—a key life event that consistently drives facility occupancy. However, if interest rates continue to decrease, occupancy rates will likely improve. This in turn will boost asset value.

The Value of Valuation

Staying informed about the value of your self-storage facility, from the time you place an offer to buy to when you’re ready to sell, ensures that the appropriate adjustments are made throughout the investment cycle to maintain profitability and maximize return on investment. Investors are holding assets for an average of five to seven years. This timeframe tends to maximize the internal rate of return. However, deciding the right time to sell is complex and calls for a case-by-case assessment.

Think of it like your yearly visit to the doctor. An annual property-value assessment keeps economic and operational factors in check and equips you with the knowledge and tools to avert potential issues. You can then make savvy choices with available capital and adjust investment strategies to preserve—and sometimes enhance—the value of your self-storage business.

Frank DeSalvo and David Perlleshi are senior directors with Franklin Street, a Tampa, Florida-based commercial real estate firm. They oversee a team that buys and sells, finances, insures, develops, and manages self-storage facilities throughout the United States. They’ve facilitated a combined $100 million in storage transactions throughout their careers. For more information, call 813.839.7300; email [email protected].

About the Authors

Frank DeSalvo

Senior Director, Franklin Street

Frank DeSalvo is a senior director with Franklin Street, a Tampa, Florida-based commercial real estate firm. He oversees a team that buys and sells, finances, insures, develops, and manages self-storage facilities throughout the United States. He's facilitated a combined $100 million in storage transactions throughout his career. For more information, call 813.839.7300 or email [email protected].

See more from Frank DeSalvo

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