Winning the Self-Storage Pricing Game: Tips for Setting Street Rates and Raising Rent on Existing Tenants

It’s well-documented that self-storage real estate investment trusts (REITs) have been pushing down their street rates in recent months. We’re also seeing evidence that the so-called “race to the bottom” is negatively affecting facility performance and, therefore, property valuations. Now more than ever, unit pricing has a significant impact on the success or failure of an operation, both for new renters and existing tenants.

In some markets, we’re finding that REIT-operated properties have street rates that are as much as 50% lower than those of independently operated facilities, allowing them to steal business from smaller businesses that are slower to respond to market shifts. However, there’s much more to their pricing strategy than lower rent. In fact, the REITs have managed to hold their in-place rents relatively flat by implementing very aggressive rate increases on existing tenants.

Sophisticated self-storage operators have access to revenue-management programs that assist with unit pricing to increase net operating income, which leads to the creation of meaningful facility value. However, you can still compete and succeed in the market even without these tools—if you’re diligent. Before you start cutting rates to match those of much larger players, consider the following tips.

Setting Your Street Rates

The first step to correctly pricing self-storage on the open market is to identify your competition and determine if your units are of a similar type. For example, are they traditional drive-up or climate-controlled? Ground floor or upper level? Traditional lock or smart lock? Are there unit alarms or motion sensors? Are any of the spaces used for specialty services such as boat/RV storage or wine storage?

Next, you need to understand your competitors’ street rates. A good way to start is to contact your local self-storage real estate broker and ask for a free rental-rate survey of the market. Once you see how your current pricing and occupancy compare to those of other facilities in the area, set up a system to check your competitors’ rates daily. Make sure you watch the online rates and onsite rates because they’re likely different.

Now the question is, do you want your street rates to be slightly lower or higher than those of your competition? Account for overall occupancy per unit size. Sizes in greater demand can be priced higher. Also, determine if any of your spaces deserve premium or economy pricing due to their unique attributes.

Once you start collecting your competition’s rental rates and examining your own product, you’ll be surprised by what you learn. As with all programs, consistency is key. You must adjust and run tests to see what works.

Increasing Rates for Existing Customers

The below-market rents being charged by the self-storage REITs are attracting new customers. If you’re competing with these operators and you want to protect and increase your facility’s cash flow and value, you’re going to have to take a page out of their playbook. In other words, be diligent and aggressive with your existing-tenant rent increases and keep your in-place rates at an appropriate level.

What I’ve observed with the REITs is that customers who rent on a move-in special—sometimes at 50% to 75% below market—typically receive their first increase during month three or four of their stay. This first jump is generally aggressive and brings the customer’s in-place rent to the desired amount or nearly so.

Today, we’re learning that self-storage tenants are staying in their units longer and generally absorbing increases. This is good news. We’ve also found that after they receive that initial price hike, they’ll generally accept another one six to eight months later.

That said, no matter how well you communicate the terms of your low, introductory move-in rates or the timing and intent of rent increases, there will be upset customers. You must provide your site staff with the right tools to handle conversations with these tenants and, hopefully, save each rental.

This starts with training managers to properly educate customers during the move-in process. If the renter is receiving a temporary, introductory rate, they should understand when the rate will change and by how much. The manager should explain that the adjusted price is still much lower than the standard rate for that unit size. When all else fails, they should have the ability to reduce or waive the increase when necessary to prevent a move-out.

Some of your self-storage tenants may still choose to leave after an increase. They may even post negative reviews about the experience. This is why it’s important to monitor comments on your website, Google, Yelp and any other platform on which customers can post.

If you get a bad review, the best approach is to respond quickly and explain the situation while reiterating that move-in rates are temporary. When you take the time to apologize and share your side of the story, it can lessen the sting of criticism and show customers that your company is listening and willing to improve. As long as you remain professional and polite, even a negative review can show your business in a positive light.

You can also call the disgruntled customer, discuss the problem, offer some concessions and ask them to post an update to their review. This will also help to alleviate any negative impact. If all of this seems like too much to manage, there are paid services such as Birdseye and Chat Meter that can monitor and manage your online reputation for you.

A Game Worth Playing

Unit pricing is critical to self-storage success in today’s market. To maximize results, you must have a sharp strategy when rolling out street rates and raising rents on existing tenants. It takes a lot of commitment to create and launch a successful revenue-management program, but the rewards make the game worth playing, even against the REITs and other sophisticated competitors.

Ben Vestal is president of Argus Self Storage Advisors, a national network of real estate brokers who specialize in self-storage. The company provides brokerage, consulting and marketing services to buyers and sellers via an extensive marketing platform. Property listings and informational resources can be found at the company website. For more information, call 800.55.STORE; email [email protected].