Do you know what a REIT is?
If you’ve been around in the self storage industry for any amount of time and spoken with other people in the space, you’ve probably at least heard this term thrown around. Maybe you didn’t know what it meant at the time, or maybe you had a vague idea.
So, what is a self storage REIT? And how can you compete?
REIT is an acronym that stands for “Real Estate Investment Trust.”
Essentially, REITs are companies—typically with a lot of financial backing—that own or finance properties that generate income in some way. In self storage, this refers to the large companies that buy or build facilities throughout the country and dominate the national market.
In self storage, REITs define a lot of aspects of the industry. From street rate trends to the adoption of new technologies to forecasting the state of the industry, REITs play a heavy role in influencing self storage.
These five companies are what experts mean when they refer to the REITs:
You might be asking yourself why this matters.
Maybe you’ve been running your self storage operation for years and haven’t paid any mind to what a REIT is.
You could also be new to self storage and feel like you’re getting along just fine without knowing what a REIT is or what they’re doing.
The fact is that market conditions have changed significantly over the last fifteen or so years, and they’re due to start changing again. There are talks of looming recessions, there are more self storage facilities than ever before, and REITs are continuously growing and penetrating new markets.
If we take just one example, Extra Space Storage has grown substantially since the early 2000s. Though Extra Space has been around for decades now, they’ve gone from just over $51 million in revenue in 2004 to around $1.8 billion in recent years.
These large investment trusts that used to stick to urban markets are even starting to push further into the rural markets that once kept small independent storage operators shaded from the need to compete with REITs.
And with all of that money and market share, you can be sure that self storage REITs are doing the work to find out how to maximize profits. From new technology to best practices and customer expectations, watching the big fish in the industry is a great way to keep an eye on trends that may even benefit a smaller operation.
Many small operators are feeling the heat from the fierce competition in today’s self storage industry.
The storage industry has been booming so loudly that reaching nearly full occupancy hasn’t been a goal—it’s been an expectation. Loans are taken out and business plans are written on the prospect that a facility will nearly fill itself.
Signs in the industry and talk from experts suggest that is beginning to wane. We may be returning to seasonal trends in occupancy, and the overabundance of facilities means that there is more competition than before.
More competition means a need to stay on top of your game.
Especially if your competition is a REIT.
There’s good news, though: You don’t need to have the weight class of a REIT to stay in the ring with them. There are plenty of advantages that small, independent operators have in order to balance out some of the disadvantages.
If you’re a local business, it’s extremely difficult to rank in the number one spot—or even the first page—of a Google search.
Today, Google search is dominated by large national chains and aggregators.
Take a search for lunch here in Knoxville as an example: I pop open Google, I type in “food near me” and hit enter, and what do I get? TripAdvisor, Open Table, Yelp, DoorDash, GrubHub, and the list goes on. What the list doesn’t include—at least on page one—is a single local restaurant.
In most areas, it may not even include a single national chain before the major aggregators.
The search landscape is similar for self storage. These large sites just have too much weight in Google’s search algorithm.
Thankfully, Google recognizes this and recognizes that people need a way to see local search results, as well. Instead of adjusting the way organic search works, they created Google Business Profile and added local search results to the results page.
This is how you compete with aggregators and REITs in search.
Fill out your GBP, follow the best practices for keeping it updated and managing reviews, and suddenly you’re able to rank above these billion-dollar companies where relevant.
It costs a lot of money to run focus groups and do the research necessary to compete on a national level.
If you’re not trying to compete on a national level, though, then you have a bit of a shortcut:
One benefit of not directly competing with the REITs on a national level means that you don’t need to stay ahead of them. You just need to match their pace in your own local market.
See what self storage software they take advantage of, watch what kind of storage they prioritize and the campaigns they run, and see how that information can benefit you!
The size of the REITs gives them many advantages.
They can lose money at one facility to win a market because they know they’ll gain money elsewhere to make up for it, for example. They play a strategic game that takes the entire industry into account.
While this may seem intimidating to go up against, you have to remember that your company can also benefit from its size.
Independent operators can avoid a lot of the red tape and sterile, commercialized service.
If you run a small business in a single city—or even multiple locations across a localized region—you know your customers better than a national chain. You are also more invested in your business’s success than your typical manager at a national chain location.
Use these things to your advantage to win over customers that care more about service than they do national brands and flashy discounts.
Another benefit of your size means that you can be more involved in your local area than most REITs can manage.
While a large national chain can certainly have local marketing initiatives, their size makes them less able to maneuver as deftly as you can on that level.
If it is right for your facility, look into how you can win over your community. Donate to local events and organizations, get involved in parades, sponsor your local sports leagues.
How are some more of our favorite posts for running your self storage business!
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