IBIS World gives us a general insight into the $23 billion a year self-storage and warehouse leasing industry raging in the US. Over 182,000 businesses have opened nationwide to take their share of the pot. Increasing in both 2020 and 2021, despite the pandemic, profit is expected to reach the highest share of revenue since 2002 with a growth of 2.5% every year.
The average profit for a storage unit business owner is $184,500 annually. Of course the potential profit for any specific storage unit facility will depend on the size of the facility, the market rate for rent in the area, and the operating efficiency of the business. We estimated the annual profit of $184,500 by taking the average storage unit facility size of 50,000 square feet x the average annual rental rate of $9 per square foot = $450,000 in annual revenue. Then taking a profit margin of 41% gives us a forecasted annual profit of $184,500.
We will dive into the sources for these assumptions and the ranges in revenue and profit margins in the article below, and show you how to use our templates to create your own projections. We have three templates that I will reference throughout the article:
Such promising revenue numbers beckon forward when it comes to making the decision to start such a business. Let’s review some of the most common steps needed for a successful and profitable business.
The average cost to start a self storage unit business is $2 million.
Three sources (Storable, LovetoKnow, MakoSteel) give us estimated startup costs of starting a new self-storage unit business.
The majority of the expenses incurred during the startup process fall into the following categories:
The average size of a storage unit facility in the US is 56,900 square feet according to Easy Storage Solutions. For easy math throughout this article we will use a 50,000 square foot facility as an example.
The layout of your storage facility is going to be determined based on the land that you have. Details around road access, drainage, zoning, etc. The cost of your land and location will also determine whether you are building a multi story storage facility or spreading out the units on the same level. Obviously the construction cost per unit will be more expensive if you build a multi-story facility, but if the land is expensive or you are landlocked your only option may be to build up. Ultimately the goal of your layout will be to maximize your rentable square feet of storage space.
Once you have solidified your facility layout that will maximize your rentable square feet, next you need to determine what your self storage unit mix should be.
On average you can fit between 130 and 215 storage units per acre assuming a 10 ft x 10 ft “standard” unit.
We were able to calculate this based on the following assumptions:
Of course if your average storage unit is larger than 100 square feet you will be able to fit fewer units per acre.
According to a survey of 10,000 storage unit facilities the average number of storage units per facility was 546.
There is not a one size fits all unit mix when it comes to self storage facilities. Although you might be able to charge a higher rate per square foot if you had all very small units, the reality is that your customers will need a more diverse mix of storage units. If your target market is in the city, and your customers are typically in small apartments, then you might need more small storage units. If you are located in a suburban area where the average home is 4,000 square feet, you are likely going to have more customers that need a larger unit.
According to Inside Self Storage the average unit mix for self storage is as follows:
| Unit Type | Unit Size | Unit Mix Percentage |
|---|---|---|
| Small | 5 x 10 sq ft | 15% |
| Medium | 10 x 10 sq ft | 40% |
| Large | 10 x 15 sq ft | 25% |
| Commercial - Small | 10 x 20 sq ft | 10% |
| Commercial - Large | 10 x 25 sq ft | 5% |
| Other | Other | 5% |
The average cost to construct a storage unit facility can range from $1.25 million to $3.5 million. We estimate this range based on an average size 50,000 square foot facility and a construction cost of $25 to $70 per square foot based on information provided by Storable. This does not include the cost of the land or other operational startup costs.
Our self storage developer template will allow you to build a construction budget for your self storage facility as seen below:
Rather than spending $1.25 to $3.5 million to build a new storage unit facility, you might want to consider acquiring an existing storage facility. Although an existing facility would be older and might require some additional repairs and maintenance, if the facility is already fully operational and leased up with tenants, you will be able generate positive cash flow faster. It can take 2 to 4 years to reach a stabilized occupancy rate for a new 50,000 square foot storage unit facility, so acquiring an existing facility with tenants can really speed things along.
You can find hundreds of self storage facilities for sale on LoopNet.
One of the great things about our self storage financial models is that they will allow you to easily compare the differences between acquiring an existing facility versus constructing a new storage facility. You can enter assumptions about the purchase price or construction price into the model, details about financing, and the number of units available to rent.
The potential revenue for any business varies due to a number of factors. The size of the self-storage facility, whether it’s one or two floors, the market need for storage in the area, and how many units are likely to get rented at any time.
The price of each unit is the key to running a successful business and making a profit. The revenue potential is held within this business element. There are two approaches to setting the right price.
A quick and simple approach to setting a price is completing market research. Staying competitive in the market can make all the difference and it’s not time-consuming. Search engines provide quite a bit of information on prices in the same area.
This approach will require more work than the first, but it has an end goal in mind. Rather than setting the price to match those of competitors, you work to set the price of potential gross profit margin.
The typical profit margin of a self-storage business, according to Storable, is around 41%. Target-based pricing means setting the price in such a way that you’ll meet that goal. According to QT Business Solutions, there are around $3 in operating expenses for every raw square footage of the facility.
Calculating the amount to charge per storage unit will depend on a couple of factors. For example, you’ll need the exact amount of square footage of the facility and the sizes of the units, and their number. Once you have the information, you can double any potential expenses to get to the required revenue to meet at least the 41% profit, unless you are aiming higher.
The average rent per square foot for self storage space in the US was $1.28 in 2022 according to Statista. Although this is the average, the rate that you will be able to charge is going to differ based on your location. Additionally, the rate per square foot for self storage units is related to the size of the units that you are renting. You can check out SpareFoot for the most up to date rent per square foot data. As of February 2023 you can see their estimates and the major differences in rent per square foot for small vs. large units.
Self-storage unit businesses run year-round which alleviates one potential worry. However, estimating revenue will depend on how many renters there will be. QT Business Solutions explains that most facilities see an occupancy rate sitting at around 90% in today’s market.
Though most businesses in the industry will shoot for occupancy of around 80% to 90%, Storable tells us that 65% of occupancy will at least cover the operating and debt expenses of the business.
With the current trend in downsizing homes and apartment versus home rentals, self-storage units are a popular choice among millennials. 2020 showed an occupancy average of 91.7%, and those numbers have been holding steady, if not growing.
Of course, those who own a self-storage unit business should not shoot for anything higher than around 90% so that there is always storage to rent. You do not want to find yourself shooting for 100% occupancy and have nothing left for new customers.
The revenue potential for a self-storage unit business is quickly calculated once you have all the right information on hand.
To start with our example, let’s say we are using a facility the size of 50,000 square feet -- the average for these types of businesses. To cover the expenses required to run the business, Truic advises setting the price at around $9 per square foot, per year.
This estimates the yearly revenue around $450,000, or $37,500 monthly. Of course, this number is for 100% occupancy, which means we need to deduct vacancies of at least 10%. This brings us to a total of $405,000 a year before any other expenses are taken into account.
The average revenue for a self storage business is $450,000 per year.
Three sources (Truic, SweatyStartUp, BizFluent) tell us the expected revenue amount for a 50,000 square foot self-storage unit business.
The common operating expense categories for self storage units include:
The average operating cost as a percentage of revenue for self storage facilities is roughly 35%.
We calculated this number based on the SEC financial statement filings for Extra Space Storage, one of the largest and most diversified storage facility owners in the US. In 2021 and 2022 their property operational costs and their general and administrative costs amounted to roughly 35% of revenue in both years. This does not include depreciation or amortization costs. Because depreciation costs can vary dramatically based on accelerated depreciation, we wanted to look at true operating costs only which are more stable. Your depreciation and amortization costs will vary depending on your specific property and financing details.
Based on a report from CBRE that analyzed 808 self storage facilities, the average operating cost per square foot was $4.03. This is based on 2017 data, so you can expect these costs to have increased, but we can still gain some valuable insight from this information.
| Expense Type | Percentage of Revenue (effective gross income) |
|---|---|
| Real Estate Taxes | 10% |
| Property Insurance | 1% |
| Utilities | 2% |
| Repairs and Maintenance | 3% |
| Administrative Costs | 4% |
| Off-Site Management | 5% |
| On-Site Management | 7% |
| Advertising | 2% |
| Miscellaneous | 0% |
Once we have estimated our expenses, we can now estimate our net operating income.
Profit from a self-storage unit business will vary drastically. Depending on the area, the size, and the market need, this business has the potential for a high return on investment.
The average profit margin for a self storage business is 41%.
Three different sources (Storable, BizFluent, RoadLessTraveledFinance) provide us with the expected profit margin for a self-storage unit business so that you too know what goals to set.
Whether you are looking to finance an acquisition of a storage facility or finance the new construction, a self storage SBA loan can be an excellent option for you. Because a storage unit facility can be used as collateral and since the primary use of the proceeds will be for real estate, you will likely be able to secure a longer term than average with an SBA 7a loan. SBA 7a loans offer terms of up to 25 years for real estate loans.
You will only be able to borrow a percentage of the acquisition price or construction cost of your storage unit facility, so you will need to raise some investment. That could be your own personal investment into the business, or you might look to pitch investors to join you in the business. If you are pitching investors, you should have a good understanding of what the internal rate of return that your potential investors expect. Once you create a set of cash flow projections for your storage facility, you can calculate the IRR - internal rate of return that you expect investors would be able to generate. This video will teach you how to calculate IRR with our projection templates.
The average IRR for a self storage facility was 16.9% between 2009 and 2018 according to Forbes. So as you are calculating your forecasted IRR you will want to make sure that the facility can get within the range of returns that investors expect. You can use our developer template as a self storage IRR calculator.
Once you complete your storage unit projections you will be able to see how your facility compares to industry standards in our Profit and Loss at a Glance table as seen below:
If you’re exploring starting your own self-storage facility and need to create comprehensive financial projections for planning, investors, or lenders we offer a CPA-developed, easy-to-use, and affordable template built specifically for self storage businesses, please check out our self storage pro forma template.
If you are moving forward with starting or buying a self storage business, your SBA lender may ask you for a business plan. Here is a quick business plan outline that you can use for your self storage startup.
