As with most real estate sectors, self-storage features some terms that are specific to this type of property, specifically in how owners describe occupancy: unit occupancy, physical occupancy, and economic occupancy. Let’s review them:
Unit Occupancy
Unit occupancy is the simplest of the three. Refers to the number of occupied units in a storage property, expressed as a percentage of the total. For example, if a facility has 100 units and 75 of them are full, then the unit occupancy is 75%. This metric provides a quick snapshot of the facility’s occupancy status, but does not take into account different unit sizes or the revenue each unit generates.
Physical occupation
Physical occupancy, while similar to unit occupancy, takes into account the rentable square footage of each unit. This is the number of occupied and profitable square feet in a facility, also expressed as a percentage of the total. Physical occupancy provides what is likely a better picture of vacant versus occupied space than unit occupancy because it considers the actual space being used.
Economic Occupation
Economic occupancy compares the actual rental income generated relative to the gross potential rent of that property. It takes into account several factors, including turnover periods between tenants, rental concessions and incentives, and late or unpaid rent. You could think of this metric as a sort of inverse premium to the credit allocation and vacancy you see in an APOD (Annual Property Operating Data) for a typical income property.
A 100-unit storage facility with 95 units leased has 95% physical unit occupancy, but its economic occupancy could be lower (and concerning) due to factors such as short-term discounts, concessions, and delinquent rents.
An example
Let’s say we have a self-storage facility with 100 units and we want to calculate unit occupancy, physical occupancy, and economic occupancy for a given month.
Unit occupancy:
Unit occupancy refers to the percentage of units that are rented, regardless of how much space is being used.
At the end of the month, we find that 90 of our 100 units are rented. Then we can calculate the unit occupancy as follows:
Unit Occupancy = (Number of units rented / Total number of units) x 100
Unit occupancy = (90 / 100) x 100
Unit occupancy = 90%
Physical occupation:
Physical occupancy refers to the percentage of the total rental space that is being used.
Let’s say the average unit size at our facility is 100 square feet. That means we have a total of 10,000 square feet of rental space (100 units x 100 square feet).
At the end of the month, we found that our tenants occupy a total of 8,000 square feet of space. Then we can calculate the physical occupancy as follows:
Physical Occupancy = (Total rental space in use / Total rental space) x 100
Physical Occupation = (8,000 / 10,000) x 100
Physical Occupation = 80%
Economic Occupation:
Economic occupancy refers to the percentage of total potential rental income that we are actually receiving.
Let’s say we charge an average of $100 per month for each unit. That means we have a total potential rental income of $10,000 per month (100 units x $100).
At the end of the month, we find that our tenants are paying a total of $7,000 in rent (70 units rented x $100). Then we can calculate the economic occupancy as follows:
Economic Occupancy = (Total rental income received / Total rental income potential) x 100
Economic Occupation = ($7,000 / $10,000) x 100
Economic Occupation = 70%
So in this example, we have a unit occupancy of 90%, a physical occupancy of 80%, and an economic occupancy of 70%.
Conclusion
Understanding these three types of self-storage occupancy (units, physical and economic) is important for investors looking to maximize their profitability. By monitoring and managing these three types of occupancy, you can control the financial health of your business and optimize your results with informed decisions about pricing, charging, and potential expansion.