The fourth article in the Self Storage Basics series. It builds on the terminology and market articles that precede it.
Patrick Wood, JBW Commercial | September 2, 2026
Three numbers, not thirty
A self storage facility is valued the way any income property is valued: on the income it produces and the return a buyer requires for that income. In practice that comes down to three numbers. Net operating income tells you what the facility earns. The cap rate tells you what the market will pay for that earning stream. Price per rentable square foot lets you check the answer against what comparable facilities have sold for. Everything else in an offering memorandum, from unit count to the age of the roof, is context for one of those three.
This article walks through each of them, shows how they fit together in a worked example, and covers the adjustments a buyer makes before trusting a seller’s figures.
Net operating income
Net operating income, or NOI, is total revenue less operating expenses, before mortgage payments, income tax, depreciation and capital expenditures. It is the number a facility is valued on, and the number a lender sizes a loan against.
Revenue includes unit rent, parking and vehicle stall rent, tenant insurance or protection plan income, administrative and late fees, and retail sales. Expenses include property tax, insurance, staffing or management, utilities, marketing, repairs and maintenance, software, and a management fee. A well-run Canadian facility typically spends 30 to 40 per cent of revenue on operations, so NOI lands somewhere between 60 and 70 per cent of revenue. A facility outside that range is either exceptionally efficient, poorly run, or being reported in a way that flatters the result.
The seller’s NOI and the buyer’s NOI are rarely the same number. That gap is covered below.
Cap rate
The capitalization rate is NOI divided by price. A facility with $600,000 of NOI that sells for $10 million traded at a six per cent cap rate. Turn the formula around and it becomes the valuation tool: NOI divided by the cap rate gives the value. The same $600,000 of NOI is worth $12 million at five per cent and $8.6 million at seven per cent.
A cap rate is the market’s required return on the income, unlevered, for one year. It moves with interest rates, with the depth of the buyer pool, and with the perceived risk of the income stream. Lower cap rates mean higher prices and more competition. In Canadian self storage today, premium urban facilities with institutional appeal trade in the low five per cent range, secondary markets sit in a 5.5 to 6.5 per cent band, and tertiary or value-add product trades above 6.5 per cent. Those bands are indicative and shift with the market, and they are the reason two facilities with identical NOI can be worth very different amounts.
What moves a facility within the band: location and trade-area supply, size, physical quality and age, climate control, occupancy stability, the gap between in-place and street rates, and how professionally the facility is being run. A buyer will also look at the ownership and capital environment described in the market article, because institutional demand is what has compressed cap rates at the top of the market.
Price per rentable square foot
Price per rentable square foot is the sale price divided by net rentable square feet. It is the second standard measure in storage, alongside cap rate, and it serves as the sanity check. If a cap rate valuation produces a price of $260 per rentable square foot in a market where comparable facilities have sold between $180 and $220, either the NOI is overstated, the cap rate is too aggressive, or the facility is unusual in a way that needs explaining.
It also anchors value to replacement cost. If new construction in the market costs $220 per rentable square foot including land, a stabilized existing facility trading at $190 is priced below what it would cost to build, and a developer cannot easily undercut it. A facility trading well above replacement cost is relying on scarcity or barriers to entry to hold its value.
Two rules about the denominator. First, rentable square feet means the area inside the units. Gross building area, which includes hallways, office and loading space, produces a lower and misleading number. Second, parking and vehicle stalls are counted as units and their rent is counted in NOI, but their area is not included in rentable square footage. A facility with 40,000 square feet of units and two acres of RV parking is a 40,000 square foot facility with parking income, not a 120,000 square foot facility.
Why price per unit is not used
Newcomers sometimes ask what a facility is worth per unit. The honest answer is that the figure means nothing. A facility built with 800 lockers averages a very different unit size than one built with 300 drive-up bays, and the price per unit will differ by a multiple even when the income and value are the same. Price per unit rewards small units and punishes large ones, and it cannot be compared between facilities. Brokers, appraisers and lenders in this sector use NOI, cap rate and price per rentable square foot, and a valuation quoted per unit is a signal that whoever prepared it does not work in storage.
Normalizing the seller’s numbers
The NOI a buyer values is not the NOI on the seller’s statement. Before applying a cap rate, a buyer adjusts the income and expenses to what a new owner would actually experience. The common adjustments:
Management. An owner-operator who runs the facility personally often reports no management expense. A buyer adds a market management fee, typically a percentage of revenue, whether or not they plan to hire a third party, because their own time has a cost and the lender will insist on it.
Property tax. A sale often triggers a reassessment, and in provinces that assess storage on the income approach, higher rents lead to higher assessments. A buyer uses the property tax a new owner will pay, not the historical figure. The property assessment appeal process is worth understanding before you buy.
Insurance. Premiums have risen sharply across Canada since 2022. Use a current quote, not last year’s invoice.
Payroll. A family-run facility with an unpaid relative at the desk needs a wage line added.
Repairs and reserves. A seller who deferred maintenance shows a low repair line. A buyer adds a normal repair budget and a capital reserve for roofs, paving, doors and gates.
Ancillary income. Tenant insurance and fee income that a seller collects is real, but a buyer confirms the program is properly licensed and the revenue is recurring rather than a one-time catch-up.
Rent roll. A buyer looks at economic occupancy, not physical occupancy, and discounts revenue that depends on concessions rolling off or on delinquent tenants paying. The next article in this series covers how to read a rent roll for exactly these signals.
Once adjusted, the buyer’s NOI is often 5 to 15 per cent lower than the seller’s, and that difference, multiplied through the cap rate, is where most price negotiations actually happen.
A worked example
A 45,000 rentable square foot facility in a secondary Canadian city reports $1,150,000 of revenue and $380,000 of expenses, for a seller’s NOI of $770,000. The seller’s broker suggests a six per cent cap rate and a price of $12.8 million, which works out to $285 per rentable square foot.
A buyer normalizes: adds a management fee of $57,500 (five per cent of revenue), raises property tax by $28,000 to reflect the likely reassessment, updates insurance by $12,000, and adds a $20,000 repair and reserve allowance. Adjusted expenses are $497,500 and adjusted NOI is $652,500. At the same six per cent cap rate the value is $10.9 million, or $242 per rentable square foot.
The buyer then checks the price per square foot against three comparable sales in the region at $210 to $250 and against a replacement cost estimate of $230, and concludes that a price in the high $10 millions is defensible and $12.8 million is not. The two sides are now negotiating over $1.9 million of value that traces entirely to five expense lines, which is why the normalization exercise matters more than the cap rate debate.
Opinion of value versus appraisal
A broker opinion of value, or BOV, applies exactly this process using the broker’s transaction knowledge and current market cap rates. It is what an owner uses to decide whether to sell and what a buyer uses to decide what to offer. An appraisal is prepared by an accredited appraiser under AACI or CRA standards and is what a lender relies on to size a mortgage. The two should land in the same neighbourhood, and when they do not, the difference is usually in the expense assumptions or the cap rate selection rather than in the method. JBW Commercial prepares opinions of value for storage owners across Canada.
What a first-time buyer should take from this
Value is driven by NOI, and NOI is driven by how the facility is run, which is why the same building can be worth 20 per cent more in professional hands. Cap rates set the ceiling and are not something a buyer controls. Price per rentable square foot keeps everyone honest and ties value back to what it would cost to build. And the seller’s numbers are a starting point, never the answer.
The next article covers the rent roll and unit mix: what the document shows, how to spot discounting and delinquency, and why unit mix matters more than unit count.
Cap rate ranges reflect JBW Commercial observation of Canadian self storage transactions and are indicative only. The worked example is illustrative and not a specific property.
This article is general educational commentary and is not investment, legal, accounting or tax advice. Patrick Wood is a commercial real estate professional and not a financial advisor or appraiser. Readers should obtain independent advice before acting on any information here.
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