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The Occupancy Puzzle: Balancing Demand and Profit

May 14, 2024

Achieving 100% occupancy or hovering around the high 90s might seem to be the ultimate goal. After all, full occupancy implies high demand and steady revenue streams. However, this conventional wisdom only sometimes holds. Maintaining full occupancy at the cost of low rents may not be the most financially lucrative strategy in the long run. Let's explore why this is the case.

The Paradox of High Occupancy and Low Rents

While high occupancy rates indicate strong demand for storage units, they also signal an opportunity for revenue optimization. Consider this scenario: a self-storage facility with 100% occupancy, but its rental rates are relatively low compared to market standards. In such cases, the business may need to strategically raise its rental rates to maximize its potential income, ensuring it doesn't miss out on revenue opportunities.

To unlock a self-storage business's full revenue potential, operators must strike a delicate balance between occupancy rates and rental prices. Here's where strategic rent increases come into play. By gradually raising rents on existing tenants, businesses can capitalize on their established customer base while boosting revenue. Learn more about strategic rent increases here: The Art of Strategic Rent Increases in Self-Storage

90% Occupancy at Higher Rent vs. 100% Occupancy at Lower Rent

Let's illustrate this concept with a simple comparison. Imagine a self-storage facility with two scenarios, in both scenarios, let's say the facilities are identical and have 400 units:

  • Scenario A: At 90% occupancy with an average unit price of $100 per unit per month, this facility would have 360 units rented out, generating a monthly revenue of $36,000 (360 units * $100 rent).
  • Scenario B: At 100% occupancy with an average unit price of $85 per unit per month, this facility would have all 400 units rented out, but at a lower rent, resulting in a monthly revenue of $34,000 (400 units * $85 rent).

Although the occupancy rate is slightly lower in Scenario A, the higher rental rates generate more revenue. In addition to having more revenue this facility still has units available to rent. On the other hand, while the facility In Scenario B maintains full occupancy, the lower rental rates translate to less revenue. The very sophisticated self-storage operators believe that occupancy in the high 80s to low 90s is revenue optimizing and in fact, view facilities that are at 100% occupancy as a sign of mismanagement.

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