Managing (primarily raising) rental rates is a necessary part of any thriving self-storage operation, but it takes finesse. Here are some tips that’ll help you adjust your street and existing-tenant rates strategically and effectively.

Every self-storage operator must tackle the important task of managing (i.e., raising) rental rates. This is critical for income-producing properties, especially considering that taxes, insurance and other operating costs continually increase. Repairs, ongoing maintenance and technology enhancements all cost money. With a plethora of new facilities coming to market, operators must keep pace to generate the highest possible income.

Though it can be intimidating for site staff to raise rates, everyone should be board, particularly if they want their salaries and bonuses to grow over time. Professional managers know their ownership has profit expectations and should be proud of the ever-increasing income they generate. Over time, this helps owners pay for needed improvements, mostly from cash flow and retained earnings and not from new debt added to the store.

Evaluate your self-storage rents at least monthly, looking at standard/street rates and existing-tenant rates. If your facility is fully occupied (90% or higher), you need to review pricing more frequently. Your management software should offer tools to help make this process simple and easy. Let’s examine some strategic, effective ways to get the job done.

Street Rates

When dealing with street rates, look at your rental-activity report, which will show all units, their prices, and which are occupied and vacant. Find the units types and sizes that are 90% occupied or higher as well as any that have three or fewer vacancies. These are the spaces on which you want to raise street rates. This doesn’t affect existing tenants, just new rentals. Depending on circumstances, it could be that almost all of your size codes need an increase.

Tenant Rates

I recommend focusing on street rates first, then adjusting rates on tenant-occupied units. Doing this gives you a higher standard rate against which to compare the increases you give to existing customers. That means you have more wiggle room between the public asking price and the one you’re charging current tenants.

Managing your tenant rates is easily done if addressed monthly instead of all at once. Don’t try to do this once per year, as it only creates a lot of work and lost value. If you’ve put off this important task and all tenants are now overdue for increases, pick the oldest ones first and apply increases to 20% to 30% of your units each month until you’re caught up.

Begin by pulling your occupied-units report and sorting by “day’s rate is unchanged” or “day’s same.” This should show you all customers sorted by unit type for example:

• Drive-up vs. climate-controlled
• First, second, third, etc., floor
• Covered vs. enclosed vs. open parking

If you haven’t set up your software to organize units this way, it’s very difficult to do a thorough rate analysis. It’s well worth the time to regroup spaces so comparisons can be readily made.

When looking at the “days same” report, you can easily identify which tenants need increases. In the system, mark them for approval or use “pending increase” to show what you want to do for each customer. Once the letters or email notices have been sent, they’ll be reflected in this report with the new rate and effective date.

Every tenant should get at least an annual increase, so start working these files when they are 300 days the same. At my company, we do increases every 11 months, so we work the files at 270 days, and send notifications by the 22nd of each month (via email or mail as dictated by the lease), and add the 30-day notice required to change the rent. Working on files on the 19th of each month to send notices by the 22nd allows a few extra days. This is sometimes necessary and will always give you the delivery in time for the 30-day notice.

Finally, when applying increases, use a percentage, not a flat dollar amount. First, this is just fair-minded. After all, it wouldn’t be right to raise the rate the same total amount, say $10, on tenants who rent two units of vastly different sizes and prices. Second, the percentage can be programmed into your software to happen automatically. We’re currently implementing 6% to 10% increases, depending on a tenant’s variance to our street rate. Customers who rent multiple units, pre-pay annually or are paying a higher price than today’s street rates still get increases, though at a smaller percentage.

Customer Care

If you’ve raised street rates on units that are fully occupied and in high demand, you’ve got more distance between the two rates, and it’s easier to discuss when customers complain. Still, all staff should be trained and prepared when customers call about increases. Failing to do is just planning to fail.

If a long-term tenant complains, let them get it out and then say, “Well, Mr. Jones, we have recently sent out some increase letters, so let me check your file.” This accomplishes a couple of things. First, it lets them know they’re getting personal attention on their account. It also gives you an opportunity to examine their history. If they’ve been a gold-star customer, we’re more likely to bend on their behalf than someone who’s constantly late or causes other problems.

If you’re speaking to a good customer you wish to retain, try to smooth things over. Use your tools and knowledge to get them to agree to the higher amount. Talk to them about how long it’s been since they’ve had a rate increase and mention how the facility’s expenses have increased during that time. If they’re still unhappy, you might offer to delay the increase for 30 days. Maybe ask how long they think it would be fair to let them pay rent at the lower rate.

Just never tell a tenant you aren’t going to raise their rent! Regardless of their status, you’re going to give them an increase at some point. Knowing these are month-to-month leases, you can come back in 90 days and try again if you wish.

Final Advice

As a professional self-storage counselor, you should have complete knowledge of your competitors, including the unique differences between your property and theirs. You should know when you can charge a higher rate for the same size unit because of your facility’s unique advantages.

The important thing to remember is your occupancy percentage by unit type/size is how you know whether the market really loves a particular unit at a particular price, in light of (or despite) what competitors offer. It really is a good measure. Generally, the price leader always has the highest occupancy!

Never be ashamed increasing your prices. They’re the best indicator of success in managing a self-storage property! Put things in perspective: You have to keep moving forward to prevent the business from falling behind. If you fight increases, you’re hurting your operation; but if you keep up with your marketplace, you’ll see rate increases happening all around you.

Stay competitive, but charge for the exclusive features and services offered at your self-storage site. Now go out there and raise those rents!

Source: Inside Self Storage

Polk & Associates

Large enough to serve a diverse clientele, yet small enough to maintain a hands-on approach, we are committed to maintaining the highest accounting and ethical standards with continuous education, extensive research resources, and excellent quality control.

Polk and Associates is a member of the Michigan Association of Certified Public Accountants, and the American Institute of Certified Public Accountants. The firm participates in the AICPA Peer Review Program, and has always received the highest level of award for its audit practice and quality control.