Why 100% Occupancy Isn't Always Good
By Alyssa Browning
Occupancy is a hot topic in the self storage industry because of the implications associated with a high unit rate. However, when discussing occupancy rates in the self storage industry many people think that the higher your rate the better, but that isn’t always the case.
To begin, there is more than one type of occupancy. Physical occupancy (also called Unit Occupancy) is the most common form discussed. This describes the current number of units rented at your facility. Economic occupancy is another type of occupancy. This refers to the amount of money deposited in the form of a percentage. For this article we will focus on physical occupancy.
Having a high physical rate does not necessarily mean that your business is in good health. It is possible to have a high physical rate and relatively low economic rate. This Inside Self Storage article does a great job explaining and illustrating this concept.
When managers and/or owners strive for a high unit occupancy they oftentimes lower rates or offer promotions. While this can be helpful for getting customers in when economic occupancy is low it can actually be harmful to the business if it is already in good health.
Low rates and/or promotions can attract less than desirable tenants. These tenants come for the cheapest rent they can find and don’t typically stay long-term. Many times these are the tenants that don’t pay their rent on time or don’t pay at all. What this means is loss of money for the facility owners in the form of time spent on collections and auction procedures. In addition, the facility may lose money when the unit is actually auctioned if it is sold for less than what is owed. Undesirable tenants also mean that the owner has a full unit that is costing them money instead of making them money because they can’t rent the unit to anyone else until they have finished the auction process.
In addition, when a facility has 100% occupancy that means they have no more units to rent out. That doesn’t sounds like such a bad thing, right? It should make life easy, and the business should be turning a profit. Unfortunately, that isn’t always the case. When a facility has 100% occupancy they are turning away customers. This does two things: (1) wastes advertising dollars because people are finding you, but you can’t help them (2) invites competition into the area. But, what if you could rent some of your units for a higher price than what you are renting them for now? What if you could make more money with less units and have fewer headaches? Increasing your rates to weed out tenants that are causing problems will open up units for the facility that could be rented out for more than what the previous tenant was paying. What this does is get rid of people bleeding the facility of money and get new tenants in that will pay the higher price - and actually pay.
So, at the end of the day if you have ninety percent physical occupancy but your business is turning a profit, then you don’t need to be one hundred percent full and turning away customers. Keeping a stable occupancy level below one hundred percent will save you time, money and headaches down the road.