Sunday, March 23, 2014

Curing the Canadian Self-Storage Market's 'Discount Disease'

Canadian self-storage is an odd body. It seems pretty healthy from the outside. The heart of the market is still pumping in customers to keep facilities healthy. Growth is steady. Renovations and additions to existing facilities are regular. But there's a worrisome microbe in the bloodstream-what Canadian Self Storage Association Director Robert Madsen calls "the Online Deals disease."

While self-storage demand is strong, discounting rental rates is a common practice among operators, Madsen says. It's decaying profit and keeping the body that is Canadian self-storage from being its healthiest.

The cure comes in the form of marketing. Competitiveness on the Internet reduces the need for lowering costs to bring in more customers, says Hal Spradling, general manager and operating partner of Toronto-based All Canadian Self Storage. Besides, discounting may not even work as well as it seems.

"It's extremely unlikely these concessions really change anything in the distribution of storage demand," Madsen says. "Self-storage is not a product you can increase market demand just by a price decrease."

A Heart Pumping Steady Demand

While self-storage demand isn't growing rapidly in Canada, it also isn't falling, which Madsen says is a pretty good sign. Occupancies are holding steady or improving slightly. "This will give operators great confidence to hold their rates and even work to improve them to cover some of the rising expenses we've experienced over the years," he adds.

Many operators expect to raise rates in 2014, now that occupancy and rental rates are picking up, says Marc Goodin, a civil engineer and owner of Caraquet & RV Storage in Caraquet, New Brunswick, Canada. "After several slow years, the rentals and rental rates are increasing," he says. A large amount of sites should start increasing rents modestly in the coming year, Madsen agrees.

With consistent demand, many operators have renovations and additions planned for the upcoming year. Vanguard Self Storage will add four buildings to the current six at its site in Peterborough, Ontario, a plan the company was always intending to carry out and chose to do in 2014 because demand was steady enough, says site manager Mark Blodgett.

Likewise, All Canadian Self Storage will add roughly 500 units to one facility and build another in Toronto, Spradling says. Apple Self Storage in Aurora, Ontario, has two expansions and a couple sites in early-stage development, says company president Phil Allan.

Madsen points out that while many existing facilities are being expanded, development of new facilities is much more difficult. "We see a lot of new activity brewing in the industry as existing facilities look to expand," he says. "New developments often see problems in high land and construction costs."

The Discount Disease

Discounting is prevalent throughout the Canadian self-storage industry. Apple Self Storage has no plans for increasing rents in the coming months because competition in the area is adding downward pressure on prices. "Everything is just going to keep pushing it down," Allan says. "We've got a lot of our competitors giving away free months and free this and free that."

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