Full Occupancy - Good or Bad?

[Amy_ISS]

Let the debate begin! Some believe full occupancy is the goal, but others say if you've reached 100%, you're actually not reaching your business' potential. Check out this article on the topic, then share your opinion.

[KrisinCali]

BAD-no room to grow.

[MamaDuke]

I've always been trained to be 87% - 93% is ideal. Right now I sit at 97% and it's awful. I hate turning people away all the time. I like having a little something to offer someone. But right now, I have nothing bigger than a 5x12, and I haven't for months. I'm aggressive with rate increases, but that doesn't cause move-outs!

[lady5563]

It is not good to be 100% occupied.

You will have nothing to rent and who wants to turn away a customer?

At one of my spots at 94% and the other is 92%

[Dave Scott]

I will take 100% all day long !!!!

[Hilltop_Bob]

I would love to be 100% all commercial -12 month pre-paid occupancy. But in reality, I think it’s always better to have a few sizes available for new business. Around 90-95% consistently is ideal for me anyway.

[BusyProperties]

We are almost always at 100% @ our three locations. I don't think that I would get away with street rates in our area & honestly I enjoy having each size at a set rate - it is easier to track.

[lady5563]

I will take 100% all day long !!!!

But then you have to send folks away!!
Along with their money!!

[BusyProperties]

But then you have to send folks away!!
Along with their money!!

We are adding a building this year for this reason!

[Dave Scott]

But then you have to send folks away!!
Along with their money!!

I HAVE THE MONEY FROM THE PEOPLE THAT ARE RENTING THOSE UNITS THAT I WOULD RENT TO SOME ONE ELSE

[RHS_TX]

One of my facilities is super small (34 units) in a rural area. I've been full for 2 years, and so has every other facility in the county.

Right now I have a cast of great tenants that give me no grief. I've raised rents every 9-12 months with no defections and I've bumped my street rates to stay market-competitive.

The frenized pandemic rental pace has slowed consideraly. So, at this point raising rents again for the hope that a couple of units might open up seems counter-intuitive. Why kick out a good tenant that's paying market rent and open the door to a potential slow-paying jerk?

I think I'll hold serve for awhile at 100% and see what the next few months brings me.

[helenatim]

I love this debate!! We are running 3 facilities with current occupancy at 92, 99, and 85%(still renting up) occupancy. We are at 92% economic occupancy overall, so I still need to raise some existing customer's rents.
Our goal is to have all current tenants at street rate and 8-10% available units. But its like the tiger chasing his tail. As soon as we get close to full, up goes the rent.

[Clarkstoragellc]

In the article the REIT is the smarter operator than Joe's by $25,800 more net income based on just the change in Revenue, based on rental rates. If this was a real life scenario, I would bet the majority of Joe operators are making $25,000 more net income and $70,000 more Cash than the REIT. The REITS are forced to raise prices to survive.

But sticking just to Occupancy, as an earlier post,
1. 100% is bad.
2. Means you're losing customers.
3. Your bad customers are forcing you to build.
4. You should have built more or started a new location.
5. You're losing a lot of income and cash.
6. You haven't gotten rid of your bad customers. Some people like Late fee money, we don't, we increase rates and get rid of bad customers.
7. The question of reaching Business Potential. a. More profit/cash., b. Freedom of time, c. Less business headaches.

Scenario:
A. You "own" and "operate" a 100 to 300 unit location: Your breakeven whether you're all paid off and missing out on opportunity income or you have debt is around 65%. Let's use a $100 unit for easy math. That means your cash flowing $35 per unit after principal/interest and expenses. If you raise the rent $10, most people think of it as a $10/$100 or 10% increase. It actually is a $10/$35 or 28% increase in both profit and cash flow, with no extra cost. Depending on your market you may lose some income for 2-3 months. You could lose some for a year, but your still ahead.

It is hard to argue against a 28% increase in cash/profit with no capital outlay. Plus getting rid of your underpaying and/or problem tenants.

B. Your market is a deciding factor. Are you in a B/C/D market or an A/B market? Can you increase the price? If you're in a small town and they have 20 miles to drive to the next town. If there is no land zoned for expansion. If you are 60% of the market. Etc. Then you control the price to a large degree.

C. If you're in an A/B market with 500 to 1,000 unit location and other businesses can build next to you. You can still increase prices up to the point competitors move in. Then your financially exposed and at some point you have to lower prices since not everyone can be at 100% occupancy going forward.

It's a matter of your Risk/Reward factor and the effort you want to put into it, whether 100% occupancy is good or bad.

[fishhu1968]

I Love this discussion too, Helenatim! Bad. 100% means the Supply/Demand is off. Every other business raises their prices when the demand is higher than supply. Gas, lumber, EGGS! I also agree, that by raising rates to a competitive average in your area, helps keep delinquent tenants down. Sure you may be getting some additional late fees, but you're losing lots more if they get sold at auction. It's a balancing act. I'm currently not taking my own advice since I'm at 100%. But I'm also the highest in the area and hate to raise rates again.

[helenatim]

I Love this discussion too, Helenatim! Bad. 100% means the Supply/Demand is off. Every other business raises their prices when the demand is higher than supply. Gas, lumber, EGGS! I also agree, that by raising rates to a competitive average in your area, helps keep delinquent tenants down. Sure you may be getting some additional late fees, but you're losing lots more if they get sold at auction. It's a balancing act. I'm currently not taking my own advice since I'm at 100%. But I'm also the highest in the area and hate to raise rates again.

Are all of your current tenants at street rate? 52% of mine are now below street rate after last week's rate increase. So I will send out 286 rent increases tomorrow at $10 per tenant. As long as fewer than 30 move out, I will be making the same $ and have some available units for spring season. I will be surprised if more than 10 move out. We shall see...