The partition is cheap and small units earn more per square foot. What decides the conversion is whether the new doors bring new customers or spread the old ones thinner.
Usually, because the building work is cheap and small units earn more per square foot, but only if the store can find the extra customers. On an illustrative store, splitting 12 vacant 200 sq ft units into 24 units of 100 sq ft costs £54,000 and adds £48,730 of NOI once the small units settle at 87.0 per cent occupancy, £725,674 of value net of cost at a 6.25 per cent cap rate. That rests on 1.23 more small-unit move-ins a month; without them the store has simply spent £54,000 on more doors for the same customers.
Worked in full in Self-Storage Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Unit mix drifts out of line with demand. A store built with a generous share of large units finds them a third empty while its small units sit near full, and the obvious fix is a partition wall and a second door. The arithmetic of the conversion is trivial. The question that decides it is whether the new units add customers or merely spread the existing ones across more doors.
| Input | Large, 200 sq ft | Small, 100 sq ft |
|---|---|---|
| Units | 45 | 120 |
| Occupied | 30 | 108 |
| Occupancy by units | 66.7% | 90.0% |
| Rent per sq ft a year | £22.00 | £30.00 |
| Rent per unit a year / a month | £4,400 / £366.67 | £3,000 / £250.00 |
The plan converts 12 of the 15 vacant large units, 2,400 sq ft, each with frontage on its long side so that a partition and a second door make two units. Works cost £4,500 per split, £54,000 in all. Incremental rent carries 6.0 per cent of variable cost (card fees, bad debt, consumables). After the works the small units are expected to stabilise at 87.0 per cent, a little lower than today's 90.0 because there are more of them. Average length of stay is 14.0 months.
Extra occupied small units = occupancy after × small units after − small units occupied today
Extra NOI = extra occupied × rent per unit × (1 − variable cost)
Net value = extra NOI ÷ cap rate − cost of works
Extra move-ins a month = extra occupied ÷ length of stay
In Excel, with occupancy after in B2, units after in B3, occupied today in B4, rent in B5, variable cost in B6, cap rate in B7 and cost in B8: =(B2*B3-B4)*B5*(1-B6)/B7-B8.
After the works the store has 33 large units, holding the same 30 customers at 90.9 per cent, and 144 small units. At 87.0 per cent, 125.3 of them are let, 17.3 more than today. That is £51,840 of rent and £48,730 of NOI, a yield on cost of 90.2 per cent, paid back in 1.11 years once stable. During a twelve-month fill the first year earns about £26,395.
| Line | Amount |
|---|---|
| Extra small units let | 17.3 |
| Extra NOI a year | £48,730 |
| Value at 6.25% cap rate | £779,674 |
| Less cost of works | −£54,000 |
| Net value created | £725,674 |
The large units were earning nothing while vacant, so nothing is given up on that side as long as demand for them stays at 30. And per square foot the small units are simply better: a pair of 100s let at 87.0 per cent bills £5,220 a year against £4,400 for one large unit let all year.
Steady-state occupancy equals move-ins times length of stay. Holding 17.3 more customers at a 14.0-month stay needs 1.23 extra small-unit move-ins a month, on top of the 7.71 that keep today's 108 in place: about 16 per cent more small-unit demand. That is the number to test against enquiry data, not the cost of a partition.
| Small occupancy after | Extra let | Extra NOI | £3,000 | £4,500 | £7,500 |
|---|---|---|---|---|---|
| 78% | 4.3 | £12,182 | £158,918 | £140,918 | £104,918 |
| 80% | 7.2 | £20,304 | £288,864 | £270,864 | £234,864 |
| 84% | 13.0 | £36,547 | £548,755 | £530,755 | £494,755 |
| 87% | 17.3 | £48,730 | £743,674 | £725,674 | £689,674 |
| 90% | 21.6 | £60,912 | £938,592 | £920,592 | £884,592 |
Read down, not across. Raising the cost of the works by two-thirds barely moves the answer; the occupancy after the split decides it. If no new customers arrive, the same 108 spread over 144 units is 75.0 per cent, and the break-even occupancy at which the value just repays the works is 75.8 per cent. The second risk runs the other way: if demand for large units recovers to 36, the store can only house 33 of them, three lets worth £12,408 of NOI are turned away, and net value falls to £527,146. Still positive, but large-unit demand is the one assumption the plan quietly sets to zero growth.
Applying the target occupancy to the new units alone. A plan that says the 24 new units will be 87 per cent let counts 20.88 extra customers, £58,882 of NOI and £888,106 of net value, 1.21 times the true uplift, because it forgets that the existing small units lose a little occupancy when supply rises. Occupancy has to be applied to the whole category after the works and compared with the customers already there. How occupancy, rent and area combine is worked in how to calculate REVPAF for a self-storage store.
Price the split as extra customers in the category, not extra doors: 17.3 more lets, £48,730 of NOI and £725,674 of value here, on works costing £54,000. Then check the move-ins it needs, 1.23 a month, against what the store actually receives. Self-Storage Real Estate builds the store from cohorts of arrivals and departures, which is the right engine for this test; the free workbook for this case carries it across six unit sizes.
It depends on the building, but the cost is rarely what decides the project. In the illustrative case each split costs £4,500 for a partition, a second door and lighting, £54,000 for 12 units, against £48,730 of extra NOI a year once the new units are let. Raising the cost to £7,500 per split only trims the net value from £725,674 to £689,674.
The mix that matches demand in its catchment, which drifts over time. A sign of mismatch is a large gap in occupancy between sizes, here 66.7 per cent on 200 sq ft units against 90.0 per cent on 100 sq ft units. Small units earn more per square foot, £30.00 against £22.00 a year, so converting vacant large space pays when the extra small-unit demand exists.
Divide the extra occupied units by the average length of stay. Holding 17.3 more customers at a 14.0-month stay needs 1.23 extra move-ins a month in that unit size, on top of the 7.71 that keep today's customers in place. If enquiry data cannot support that, the conversion creates little value.
This article is one calculation from Self-Storage Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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