What REALLY matters in a market analysis?

This post is from Box Pro's "3 Things" newsletter.

A brief newsletter from Box Pro in which we share 3 things in or about the world of self-storage and all the images are AI-generated.

"a market that is massively oversupplied with self storage"

Where do tenants really come from?

In the industry, it's common to hear that nearly all your tenants come from the site's 3 miles radius with the rest coming from the 5-mile radius. I recently tested this theory on a portfolio I'm involved with by looking at our top 4 performers and seeing where tenants came from. On average, 44% of tenants came from the 3-mi radius, 31% came from 3-5 miles away (so in total, 75% came within a 5-mi radius), 17% came from 5-10 miles away, and 8% came from beyond 10 miles. For context, these sites had an average 3-mi population of 55k and 5-mi population of 150k. When conducting your market analysis, make sure you are looking beyond 3-miles and even beyond 5-miles to understand your potential tenant base.

How much does supply really matter?

From the same portfolio analysis, we discovered that the average square feet per capita of storage in the 3-mile radius was 13.5. According to probably all industry advice, these markets are incredibly oversupplied, yet they are our top performing markets out of a portfolio of 25 sites. In recent years, I have stopped doing standalone supply/demand analyses simply because understanding supply levels is only telling a tiny piece of the story. In order to most efficiently gauge demand in a market, the supply/demand analysis must be coupled with demographics, rental rate trend analysis, and an in-depth competitor analysis at minimum.

What DOES really matter?

As mentioned above, if all competitors are near full and have consistently strong rental rates, then there is unmet demand in the market, regardless of square feet per capita (all else being equal). In our study, the most successful sites had decent traffic counts (average of 13,000 AADT) and population (55k in 3-mi and 150k in 5-mi, as mentioned above). Everything else was pretty average—median household income was $56k, population growth was a little under 1%, share of renters was 37%. I know this is a limited analysis, however, every market is different and has its own economic drivers at play.