One common misconception among self-storage owners is that a facility needs to be 100% occupied to achieve its highest possible value.
While occupancy is certainly an important factor in self-storage property valuation, it is far from the only thing buyers and investors consider.
In fact, a self-storage facility operating at 90% occupancy could potentially be more attractive to an investor than a fully occupied facility, depending on its rental rates, operating performance, location, and opportunities for future growth.
So, what really determines the value of a self-storage property?
Let's take a closer look.
Myth: A Self-Storage Facility Is Only Valuable When It's 100% Occupied
Fact: Buyers look at the property's overall financial performance and future potential, not just its current occupancy rate.
Occupancy tells buyers how much of a facility's available storage space is currently rented. But it doesn't necessarily tell the whole story about how well the property is performing.
For example, a facility operating at 90% occupancy with competitive rental rates, healthy profit margins, and opportunities to increase income may offer an attractive investment opportunity.
On the other hand, a facility with 100% occupancy may have limited room for growth, particularly if its rental rates haven't kept pace with the local market.
Here are six factors that can influence a self-storage facility's value beyond occupancy.
1. Strong Rental Rates
The number of occupied units matters, but so does how much income each unit generates.
A facility charging competitive market rates may produce more revenue than a fully occupied property with below-market rents.
Buyers often look at current rental rates, historical rate increases, and opportunities to adjust pricing over time.
If your facility has maintained the same rental rates for several years, there may be an opportunity to increase revenue without adding more units.
2. Healthy Operating Margins
Revenue is only part of the equation. Buyers also want to understand how much income remains after operating expenses.
Net operating income (NOI) is one of the most important metrics used when evaluating income-producing commercial real estate, including self-storage facilities.
NOI is calculated by subtracting operating expenses from effective gross income, before debt service and income taxes.
A facility with well-controlled expenses and consistent income may be more attractive to investors than one with higher occupancy but significantly higher operating costs.
3. Room to Increase Rents
Sometimes, a property is performing well but still has room for improvement.
If existing tenants are paying below-market rental rates, a new owner may see an opportunity to gradually increase rents and improve the facility's income.
This potential is often referred to as a value-add opportunity.
Investors may look at current rental rates, competing facilities, local demand, and historical pricing to determine whether rents could be adjusted.
Of course, any potential increase needs to be realistic and supported by market conditions.
4. Expansion Potential
A facility doesn't necessarily need to be fully developed to have significant investment potential.
Additional land, unused space, or opportunities to add storage units can make a property more attractive to buyers looking for future growth.
Expansion potential depends on several factors, including zoning, site layout, available land, access, construction costs, and local demand.
For investors, the ability to increase rentable square footage can represent an opportunity to generate additional income over time.
5. Favorable Location and Accessibility
Location plays a major role in the performance of a self-storage facility.
Buyers often consider proximity to residential neighborhoods, population growth, traffic patterns, visibility, accessibility, and competing storage properties.
In Western North Carolina, local market conditions can vary considerably between Asheville, Hendersonville, Black Mountain, Waynesville, and surrounding communities.
A facility in a growing area with convenient access and limited competing supply may have advantages that aren't immediately reflected in its current occupancy rate.
6. Well-Maintained Improvements
The physical condition of a self-storage facility can also influence its marketability and value.
Buyers may evaluate the condition of storage buildings, roofing, paving, fencing, security systems, gates, lighting, drainage, and other site improvements.
A well-maintained property can reduce concerns about immediate capital expenditures and make the investment more appealing.
Even when occupancy and income are strong, deferred maintenance can affect what a buyer is willing to pay.
What Matters More: Occupancy or Income?
The answer is that both matter, but they need to be evaluated together.
A property's occupancy rate helps explain how much of its available space is being utilized. Its rental income and operating expenses help reveal how effectively that space is generating profit.
Ultimately, buyers want to understand the property's current financial performance and its potential to produce income in the future.
That is why looking at occupancy alone can give owners an incomplete picture of their facility's value.
A property operating at 90% occupancy may have room to increase rents, improve operations, or expand. A fully occupied facility may also have significant value, but its potential depends on more than the number of rented units.
Find Out What Your Self-Storage Facility Could Be Worth
If you own a self-storage facility in Western North Carolina, understanding what drives its value can help you make more informed decisions about your investment.
Whether your facility is 90% occupied, fully occupied, or somewhere in between, there may be opportunities you haven't considered.
Aaron Palmer of CENTURY 21 Integra works with commercial real estate owners throughout Western North Carolina, with a focus on self-storage properties and investment opportunities.
You don't have to be ready to sell to understand what your property could be worth.
Want a clearer picture of your facility's market value?