There are many factors that control the prices of Self Storage spaces. Fear is the biggest factor in setting prices and it’s evident that many sites set prices cheaper than their fellow facility hoping that they will attract more business than they do. That’s human instinct.
We think it’s more complicated than that. The self Storage Manager role is changing from setting prices to customer service.
Can Technology Control the pricing of Self Storage Rates?
Unit sizes, local demographics, occupancy, local exposure and many other factors control what Self Storage prices should be.
Over the last 20 years, Self Storage rates have not really kept pace with the increase in land price increase and development costs.
If you graphed the rise in Self Storage prices 5 years ago with the increases in land and development you would have seen the lines on the graph crossover. This simply means that Self Storage returns are diminishing.
They don’t have to…
Up until 2007, Self Storage facilities were being built worldwide at an unsustainable rate and after a period of consolidation and rent up, building new facilities is on the rise.
How does the average operator combat this? In the old days, it was pretty easy just to put the Self Storage rents up in January by 5% – no one really complained and that was that.
Self Storage rate management is the new buzzword of the industry – it has been around in various forms for at least 10 years.
Few operators have implemented consistent rate management well. There is little doubt that tenant rate management and new customer rate management is a science not understood by the majority of Self Storage operators.
SiteLink Web Edition works towards delivering a solution to assist any operator to manage both rates for the existing customer and new rates for new move ins.
But what if you need more help?
Seasonality plays a major part in what rate should be as we have quite times we have busy times, although the industry needlessly gives money away in January and February when it is our busiest time with pointless discounts.
Smart operators can use the rate management controls in products like SiteLink Web Edition to enhance the cash flows of between 8% and 15% per year. We know of one operator in Australia has increased the rate by 40% in five years smashing the national average which is much lower.
Airline companies, rental car companies and hotels have been practising rate management for many years and the spread between their customers on any given day or night can be as much as 40% for what would appear to be the same service. If you’re not sure next time you’re on the plane ask the guy next you what he paid for his ticket; you’ll soon discover is not the same price you did! In reality, we all sit on the plane together and we all sit in economy: theoretically the product is the same for all; the reality is it isn’t.
Supply and demand for these operators controls the spread of pricing across the rate management systems that are used for daily bookings for cars planes motels. Self Storage more recently has adopted a similar approach with larger companies specifically in the United States adopting a similar approach to revenue management, resulting in an overall rental position which is in some cases up to 30% higher than a competitor facility. They are using world class enterprise Data analysis tools.
Paul Darden the mastermind behind District Manager software (which is an add-on tool for SiteLink Web Edition) believes there are over 100 variables in determining the rate for any given Self Storage space. District Manager has been developed with this logic in mind and with careful analytics delivers real-time increases in rates based on the controlling factors that control the rates with its new DRM product, a game changer for the Self Storage Industry.
One of the clear examples of the factors that can control price is disposable income. Mozo.com.au released data that shows Canberra has a high is disposable income after mortgage expenses at $3,271 per month. This is due to the high concentration of public service jobs on high incomes.
Theoretically, this shows that the ACT should have the highest Self Storage rates in Australia.
But it doesn’t.
Sydney has the lowest net income after mortgages at $1895. In many areas of Sydney specifically on the North Shore and CBD suburbs have some of the highest rates in Australia despite the lowest affordability by customers, demand controls and the price rather than affordability.
So affordability with net income each month cannot be the sole determination of rates.
Logic would dictate that the ACT should have the highest rates and in Sydney the lowest. It’s a complex science were a matrix of many factors controlled by demand and product determine the price.
District Manager unravels this science for users.
Price is clearly not the determination for all rentals otherwise sites achieving well over $400 per square metre per year would be empty. It’s quite the contrary.
District Manager takes away some of the science that is needed with some simple assumptions. Based on research Rates can be raised for every new move in and importantly make sure that the rates that are being paid by the existing storers are the right rates.
If you have a 100 or more 3 x 3 units and you increase the price of 3 x 3 spaces by only five dollars per month, you are now discounting the other hundred of the rented spaces by five dollars each, losing $500 per month, meaning you have to rent 100 spaces at the new rate to make up for the losses on the hundred that you have not increased the rates on.
Unlocking the revenue that is trapped in unit pricing is the new way to increase revenues in Self Storage and it reduces the reliance on new business.
If you need help with revenue management please contact us and we will show you the value of the revenue management tools in District Manager the very best in revenue management available today.