Day 26: How Many Self Storage Competitors Are Too Many in One Market?

All right. Welcome back to the Storage 100, day 26. And of course, I am Joe Downs with the Storage Mastermind. Today, let's tackle the question that kills more deals than any other. How many competitors are too many? This is where the rookies get cold feet and the seasoned developers clean up. First things first, you need to stop overlooking— stop looking at your competition as a threat and start seeing it as a data point. So the fear of saturation is a myth to a certain degree, all right? But it's a myth I wanna bust for right now. So in this episode, we're gonna decode market saturation using hard numbers and real-world tactics. So forget the gut feeling, which is important and it'll come into play, but not right now. We're talking about a systematic approach to market analysis instead. So you need to know exactly where and when to build and when to walk away. And we'll start by reframing your entire perspective on what competition actually means. When I say build, by the way, I mean buy as well, right? Build or buy, kind of interchangeable here for the most part. Alright. So the biggest mindset shift is— or the mindset shift is the biggest thing you need to— the biggest change you need to make is a better way to say it. Zero competitors is not necessarily a blue ocean. Sometimes see that from people like, oh, I got no competitors. I'm like, well, it could be good or bad. Um, it, a lot of cases, it's more likely a warning sign. If the national players, for instance, are ignoring a healthy-sized market, it's usually because there's no demand. Um, you're probably not smarter than the entire industry, and you may be looking at a desert, not an opportunity. So, um, we just talked about seeing competition as a data point, and this is the data you're being given to read. So in the But on the flip side of this, in most cases, seeing many competitors is proof of concept. So it means people in that area are actually already paying for self-storage. So the market's been validated for you, and now your job is not to find a market with no competition. Your job is to find a market with proven demand and then execute better than either the existing players or the existing owner. owner-operator or manager or whatever. You should fear a market where nobody needs your product, not a market where others are already serving that need. So how do we move past the myth and get to the hard data? Well, we need to move on from the myth to the markets. And there's a— and the market can speak to you and it has a number that it speaks to. And that's that magic number or or ratio, or, well, frankly, we call it an index, is the supply index, and it's measured in square feet per capita. And this is the single most important metric for assessing a market's saturation. And it's simple math. It's the total supply. So all the available square footage in the defined market we're talking about. So if that's 3 miles or 5 miles, we look at 1, 3, and 5. In fact, we're 15-minute drive time, but you're looking at it in each of those metrics. So each of those defined areas, right? So it's Total available square footage, not occupied or unoccupied, just total available divided by the population of that defined area. So this number tells you exactly how much storage space exists for every person in that trade area. So under 6 feet per capita, or as we say, a supply index of 6 or less, the market is typically underserved. Almost doesn't matter where you are. That is a green light to buy or build pretty much immediately if you can make the numbers work. 7 to 8 square feet is the national average. Some would actually argue that number's now more like 8 to 9. I've even seen 10 square feet. But either way, this is the— that, let's just say 7 to 10. That's an area we're gonna proceed with caution because the market is going to matter and you're gonna see the market always matters. But you need a strong reason to build in certain markets. So like a superior location or a better product, sure. But the numbers have to work too. And you can buy in those markets, but you have to know where you know you can manage it better for the upside than it's currently being managed. And that's 7 to 10 square feet per capita markets. So they can be great markets. We've bought plenty of times in them, but you got to proceed with caution and there's got to be some other compelling reasons. All right. Over 10 square feet, that market is very likely oversupplied. With exceptions like Florida, that's not the number in Florida, anywhere in Florida because they have no basements, no attics, or unique markets like vacation destinations. By the way, that Florida number, you'll see creep up into the Georgias and Carolinas as well. So there's some exceptions. There's probably definitely exceptions out west as well, like Texas and anywhere where you have no basements, that number's going to be a little different. When you're in traditional markets, you know, outside of primary markets or secondary markets where you have, you know, housing stock with basements and attics, that's where we're talking about that 7 to 10 number. And that's most of the country. So if over 10 square feet, unless you have a truly unique angle, you're probably better off just walking away. Again, except for those special geographic situations, those carve-outs. But this is the metric that cuts through all the noise and gives you a clear objective answer. But the numbers based sometimes can be based on old data, right? So we need to do a real-time check as well. And also it's kind of a sanity check for the market. So the square footage per capita is great, but the data is usually months, sometimes years old. So the true test is the occupancy check. You need to pick up the phone and call your competitors, ask for a 10 by 10 unit. Their answer is going to tell you everything you need to know about that market right now. If they say we have plenty of 10 by 10s available, for instance, then that might be a— that might tell you everything you need to know. The market's a danger zone. High vacancy means they're desperate and the market's likely oversupplied. If they say, I have one left, but you better grab it today, well then, you know, you probably have a tight market. Supply is meeting demand at that market and sounds like in a healthy way. But a new facility, if you're thinking about building one, could tip the scales there. Doesn't mean it won't work, just means there better be some other compelling factors like, It's a high-growth market, for instance. The gold mine is when they say, sorry, we're full. I can put you on a waiting list. Now we know demand exceeds supply. Customers are waiting for you to pay them. Ignore the websites. They hide true availability. Call them. This is the real-time data you need to move forward. Okay, so just covered the occupancy. Now we need to check price. This is where you separate the healthy markets from the saturated ones. It all comes down to pricing power. So in a healthy market, Rates are climbing year over year and you, and you won't see desperate first month free banners or, you know, plaster everywhere. Instead, you'll see high administration fees, maybe $25 or more, and waitlists for the popular sizes like 10 by 10s or 10 by 15s or whatever's popular in that market. But a saturated market, that could be a race to the bottom. And that's where you're gonna see those dollar move-in specials and 50% off the first 3 months just to fill some units. Massive red flag. Here's a pro tip. Watch what the big REITs do, like a Public or a CubeSmart or Extra Space. If their online rates are 30% lower than their street rates, they're bleeding for occupancy. If the giants are panicking, you should be too. So we want to avoid this mess. So let's nail down the exact steps to confirm saturation. All right. So this is your saturation checklist. You need to run through it every single time. First, calculate the supply index ratio. Find the total supply of all storage units within a 3-mile radius, 5-mile radius, 10 to 15-minute drive time, and divide that by your population. That number's under 7, probably in a good spot. Then make your occupancy call. Call the top 3 market— top 3 competitors in your market and ask for a 10 by 10. If they tell you they have a waitlist, another green light. Third, check those promotions. Heavy discounting is a sign of weakness, plain and simple. If they're offering first month free or something like, something like a really enticing special, they're probably struggling to justify their street rate. So don't be the sucker who buys in a failing market. These are the steps you need to take to confirm the data we just reviewed. All right, let's wrap it up. To recap, you've already stopped running from the saturated markets and now you know how to read them like a pro. Competition's not a threat. It's a validation the market has demand. The key is knowing how to measure that competition so you can outmaneuver it. You've learned the occupancy check, the rate check, and the action steps to confirm your data. And this is how you're going to build a bulletproof investment thesis. All right, before we close out here, I need you to do 3 things for me. Smash that like button so the algorithm knows we're delivering quality content. Hit subscribe so you don't miss day 27, which is going to be— wait for it. Finding underserved markets—that's my favorite. And also, because of the lives that I'm doing, remember I'm also bringing on guests, so you're not going to want to miss them. So subscribe—that's that's for you. That's so you don't miss anything. And then share this because sharing is letting people know in your network you're in this space. You always want to share because you're developing street cred among your network as being a thought leader in the self storage space. Trust me, they will thank you later.