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17 Feb 2020

What is True Economic Occupancy?

author

Patrick Gorman

Valuation Specialist

Many storage facilities have no problem capturing and retaining tenants. When their occupancy statistics reports (rent rolls) are reviewed, they appear to be 85% to 95% occupied. Are these properties prime acquisition targets?

They won’t have any problems achieving maximum leverage from a refinance, right? The level of occupancy of self storage facilities can be measured in different ways. While some owners measure occupancy in terms of square footage, the most common measurement of physical occupancy is the number of storage units rented. Another key measurement metric is economic occupancy, which factors in discounts and concessions as well as credit loss.

Essentially, physical unit occupancy is a “top line” concept, while economic occupancy is a “bottom line” concept. Typically, economic occupancy is 2% to 5% lower due to discounts and concessions. Many operators and managers focus heavily on maintaining physical occupancy, which is vital. However, spending time and energy on improving economic occupancy “bottom line” is what is most important.

According to Carol Krendl, an experienced storage auditor and consultant based in central California with over 25 years of storage expertise, if your facility’s physical unit occupancy exceeds your dollars deposited (economic occupancy) by more than 10%, you have at least one of the following problems:

Let’s quickly focus on concessions/discounts. Doesn’t every facility have to offer concessions/discounts and/or move-in specials? Our appraisal practice group surveys thousands of facilities each year and there is a large variance in the concessions/discount programs employed in the marketplace. How do you determine whether to offer concessions, and what process does your facility manager or leasing staff follow to determine what concessions to offer (if any)? Track occupancy and rates of turnover for all your unit types/sizes. Limit or eliminate concessions/discounts given on unit sizes with high rates of turnover. Here are three suggestions to maximize economic occupancy:

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