Debunking the High Occupancy Myth

It’s Not Always About Occupancy

Every time I’m called in to assist a store that is struggling with operations with a full property audit, more times than not, my first inclination is that the property is striving towards a high occupancy and ignoring red flags at the store. So, one of my first jobs before doing anything else is to start debunking the high occupancy myth.

I assisted some time ago at a store in Sacramento, California.  The owners, based in Tucson, told me, “You need to get up to Sacramento and change the rates.” The store was fully occupied, at 100%, and they felt it was time to adjust the pricing.

When I arrived at the store, I greeted the manager and informed him I was there to increase the rates. His reaction was immediate—his face turned pale, and the veins in his neck were visible. He looked distraught. “I’ve finally achieved the company’s goal by reaching 100% occupancy, and now you’re going to change the rates?” he exclaimed.

I reassured him, saying, “No, it’s not that you’ve failed. We’re proud of you for achieving full occupancy. However, we know that when occupancy reaches 100%, it indicates that we need to raise the rates.”

We eventually realized that when someone claims, “Our store is doing great; we’re at 100% occupancy,” it often reflects a lack of training. In this case, 100% occupancy should NOT be the store’s ultimate goal.

Let’s Discuss the Terminology

**Unit Occupancy** refers to the number of rental spaces that are currently occupied.

**Area Occupancy** indicates the percentage of the total rented square footage.

**Gross Potential** represents the total income that could be generated if all spaces were rented at full price.

**Actual Gross** is the absolute revenue your facility should expect to deposit each month.

**Economic Occupancy**, sometimes called the effective rate in specific software, reflects the money flowing into the bank as a percentage. This may also include a specific dollar amount.

This terminology helps us understand a self-storage facility’s overall performance and profitability and gets us started debunking the high occupancy myth.

What Factors Can Affect the Effective Rate?

Discounts

First, consider any discounts applied to the standard rent. These discounts can include free spaces, employee spaces, and charity spaces, which are typically classified as free in your records. However, if the property owner has specific spaces, they might list them under their name instead of categorizing them as free.  Evaluating all these elements is essential, as they can either reduce the standard rent to zero or provide monthly discounts that may not be recorded as free in your software. Ensuring accurate classification of these discounts is crucial for correct financial reporting.

Various factors can influence pricing, including concessions and special offers. These discounts can be long-term, such as those offered to senior citizens, military personnel, or students, which may apply for the duration of their tenancy. For example, a standard promotion is “pay for 12 months and get the 13th month free.” This type of offer is straightforward and typically lasts only one month. Another example is “pay for one month and get the second month free.” These concessions or specials can be incorporated into the software.

Company Spaces

Another factor influencing company performance is allocating storage spaces for golf carts or company storage. During an audit, I discovered a storage property that had 23 spaces that were either complimentary or ultimately free. It turned out that these spaces were all designated for company use. The company in question was a construction business, and they filled these storage spaces with various construction materials and equipment. They kept acquiring more items without effectively utilizing the spaces, impacting the store’s performance.

Monitoring the number of storage spaces allocated for company use is essential. Too many company spaces can be detrimental, mainly if provided for free. It’s best to keep everything to a minimum and avoid having more than you need.

Find the Issues

One of the great forms you can look up in your software would be the discounts given, which can be for a reported period. I always prefer to offer one month free instead of four months at 25% off. Customers can become accustomed to discounts, like a special 20% off for six months. I dislike that approach because it provides a lower rate for an extended period. When they reach the end of the six months, they often react surprised at how much the price increases, even though it isn’t that high. I believe in enticing customers with a free initial month instead. That’s why major companies like Public Storage often offer a $1.00 move-in special. They recognize that moving incurs many expenses, which is an easy way to attract customers before transitioning them to their desired pricing.

Don’t Be Afraid of Raising Rents

Often, when I visit my stores and help others with this issue, the managers convey a sense of dread about having to raise rents. However, I believe it’s essential to be aggressive with rent increases when debunking the high occupancy myth. If you implement an increase that is too small, it can lead to dissatisfaction among tenants. For example, I heard of one case where a landlord raised the rent by just $1, and many tenants were upset, leading to some moving out. I find it surprising that a mere dollar increase could provoke such a reaction.

Keep the communication simple. Use regular paper for rent increase notices, and if possible, send them via email as well. This approach is not only more practical, but it’s likely to be better received. Consider these tips when planning your rent increases.

Consider a price increase of around 7 to 10%. This approach generally works well. You could likely manage that increase if you haven’t done this for a while. However, that percentage might be too high if you know this process.

It’s important not to implement a too-small increase, either. For instance, raising the price by just $1.00 can seem absurd, especially if you previously spent $0.49 or $0.50 on a stamp. If someone mentions they’ve had a $100 rent increase, raising the rent by only a dollar feels insignificant. When you’re increasing rent, raising enough is better to avoid tenants’ frustration. Since any increase will likely upset people, you might as well make it substantial.

Debunking the high occupancy myth is not an overnight process. You have to work towards an occupancy that is good for the property and doesn’t happen immediately. Additionally, it’s a good idea to follow the pricing practices of public companies, as they tend to be aggressive and successful in their pricing strategies.

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