Self Storage- Rate Management

[Henry Clark]

Made a rate management change going into Fall/Winter.  We are in Iowa, around December through mid April, new rentals pretty well shut down due to the weather.  One of our new locations is in a competitive market and a new location built about 1 mile away.  They have been offering 4 months free, plus they might pay 1.5 months if received through Sparefoot.  They just reduced to 3 months free this month.

In our area most REIT or larger storage locations offer 1 to 2 months free with new contract. Have not researched if this is a month to month or annual or six month term. Plus they would pay 1.5 months minimum if it came through Sparefoot.

We have never offered any free months, just a free lock.  All of our markets are small town, except the latest two, which are in a 1mm metro area.

All of our other locations are 100% full and we need to build more.  Key- this is not a single location operation, thus we have additional cash flow to support our "new" locations.

This location we have a mixture of 10x10; 10x15 and 10x20.  230 units in total.  Room for another 200 units.

10x10- almost 100% full.  No price change, since almost rented out.

10x15- about 1/3 full.  Normal price is $110/month.  Moving to $55/month for 6 month lease, and then revert back to $110 per month (new renters will be made aware of this up front).  We will run this pricing through the end of December, only on Sparefoot.  Any off the street will get our street rate of $110 per month.  Running now, takes into account Nov/Dec/Jan/Feb/Mar/April as being empty or low traffic months anyways.  Might not make this decision in a warmer climate.  Thus we will only lose money on renters who would have paid the full $110 per month. We are not really set up to give free months away and change monthly rates so we are doing a straight rate reduction. Also when people search out a 10x15, we will show up as the lowest price by far, even though with the competition free months, we will be the same.  The question becomes which will attract more; competitors "Three Months Free" normal $120 or our "$55 6 month rate" normal $110.  Will see by December. Learning moment.  We are well past the "Break Even" occupancy rate, covering all costs and Principal/Interest, thus this is not a low "Cash Flow" issue, but a Rent Up approach. 

10x20- about 1/3 full.  No price change, there are not many of this size in our surrounding area or at the new competition.

Not passing on any knowledge.  This is where I will be learning.  Value of the word "FREE" versus a significantly temporary lower rate.  As noted above this won't be a "Big Mistake" however it turns out. Cash Flow is covered and a 6 month term.

Start small and Make Your Big Mistakes Early.