Everyone has that one tenant that’s been here since the doors first opened. They pay on time, visit rarely, and don’t cause problems - but they’re still paying the heavily discounted rate they signed up with two generations ago.
Now, if you’ve just got one good tenant like this, you’re probably fine.
But what do you do if you’ve got ten, twenty, or fifty units filled with tenants paying far below your street rates?
Even a full facility can fall far beneath its economic occupancy potential if too many tenants are paying too little. Eventually, you’ll need to raise rates or settle for making less than you could - which could be fine! But if you’re struggling to keep up, raising under-market rates is a good place to start.
Raising storage rates requires a careful hand. If your tenants have been paying a certain amount for a long time, they won’t appreciate you charging more. Luckily, you set the stage for this conversation and cast this unpleasant change in the best possible light!
In early 2023, self storage operators have been worrying about the potential for a recession. There are some worrying indicators that demand for self storage might dip after the pandemic.
For this reason, we’ve seen a lot of talk about lowering rates (or at least not raising them) to ensure facilities aren’t losing tenants when overall demand is going down. People are understandably afraid that if they lose a tenant in a slow market, they might not get a new tenant to replace them!
Raising rates is a tricky balance between how much new income you’ll bring in and how many tenants you’ll lose. Some tenants will get irritated, feel cheated, or simply be unwilling to comply with a rent increase - your goal is to make that percentage of tenants as low as possible.
Not every facility needs to raise rates. If your business is humming along and you’re making a good portion of your potential maximum income, the best plan might be to do nothing.
Check out our Rental Rate Increase Letter here!
Consider increasing your rents when:
If you’ve decided you do need to raise rates, where do you start?
First, you need to decide whose rates you’re going to be raising. You don’t want to raise rates on everyone all the time - this creates a poor customer experience and can lead to tenants looking for someone else to rent from.
Instead, find those tenants whose current rates are furthest away from your going market rates. These are your greatest potential for actually increasing your revenue. They’re also the ones you’re most likely to convince that you’re not gouging them.
This is the big trick for raising rates, which Stacie Maxwell of Universal Storage Group shared in our recent Marketing in Slow Markets GabFocus session.
Raise your street rates before you raise your tenant rates, then point out to your tenant that you’re still giving them a discount.
Obviously, your tenants will be annoyed if you try to charge them more than you advertise to new tenants (even though lots of businesses do this). That means if you feel like you need to increase rates across the board, start with your advertised rate.
Then, offer your current tenants a bit of a discount off that listed rate. This way, you’re showing your tenant that you value their loyalty while still showing that it was time to increase their rental rate.
Regardless of how tactfully you raise someone’s rates, you’re going to upset some tenants. Some tenants will get so annoyed that they move facilities - this is baked into the rate increase. If you find that demand has dried up, you shouldn’t be raising rates anyways.
Raising rates can be scary - you don’t know how much business you’ll lose! But self storage operators have a few big benefits in this scenario.
Number one, your tenant would have to do a whole lot of work to move out. Unless your rental rate increase strikes them as horribly unfair (or they simply can’t afford it) they have a strong incentive to stay.
Number two, your rate increase shouldn’t put you above the market rate. We recommend raising your existing-tenant rates to something lower than your street rate, so they still feel like you’re treating them well. If your new rate is higher than what they can get down the street for a comparable unit, you may need to reconsider.
Driving demand can be tricky - many of the REITs offer significant discounts for new customers and if you are competing with them, you can’t have a street rate doubling theirs. We know the REITs are going to raise rates quickly and customers will end up paying the same there as at your place (if not more), but how do you convince the new renter of this?
Some of our operators have had success by offering three-month discounts! Self storage renters often underestimate how long they’ll be storing, so they may think they’ll only need you for three months anyways.
If you’re open and clear about the three-month limit on the discount, you can bump them up to a fair market rate without much difficulty. We’ve got a list of self storage discount plans to try if you’re looking for ideas.
Balancing demand, revenue, and customer experience is tricky. You can’t run a business by alienating every customer you run across, but you can’t get any customers at all if you’re charging over the odds. Then if you’ve got happy customers and cut-throat rates, will you even make any money?
The sweet spot is out there though, you’ve just got to put in the time to find it!
Learn more about the importance of reviews, and how to handle them, with these:
