Last year, many property sectors struggled as a result of the Covid-19 pandemic. However, one sector that bucked the trend and managed to thrive despite national lockdowns and the recessionary climate was self-storage.
According to data from the Self Storage Association (SSA), the industry saw growth in both revenue and occupancy.
So why did the sector perform so well, what are the chances of self-storage operators posting a similar strong showing this year and what are the major challenges the sector needs to overcome in 2021?
There are a number of factors behind the self-storage sector’s stellar performance. Firstly, the pandemic created a more diverse customer base.
“Working from home, creating a space for offices, demand from online retailers for space for stock and the stamp duty holiday have [all] had a positive impact,” says Philip Macauley, a partner at Cushman & Wakefield. “As well as that, divorce and death rates as a consequence of Covid-19 have [led to] an increase in the customer base.”
It is a view shared by Rennie Schafer, chief executive of the SSA. “People often come to self-storage during life-changing moments; the birth of a child, moving house, a death in the family, entering or leaving a new relationship. All this is continuing during the pandemic, and in some cases, such as use by people renovating their houses, has increased.”
He adds that the number of commercial users of self-storage space has also grown as they have had to store items such as furniture to make space for social distancing in shops and cafés.
Schafer says another reason the sector has grown is due to increased awareness. “Increasing awareness is the biggest thing driving the industry at the moment and has been for some time,” he says.
However, more work still needs to be done on the awareness front, according to Oliver Close, from CBRE’s self-storage team. “Customer awareness of the product has been steadily increasing over the last year, but people’s real understanding of what it is, is not there yet.”
One of the key upsides of the self-storage industry, which helps protect it from seismic shocks caused by events such as pandemics, is that the sector has a very broad, long-standing customer base.
“Unlike a lot of other property assets, this sector doesn’t have a single customer it relies on – an anchor tenant,” says Schafer. “The whole model is designed for people to move in and out.”
In store: many of the leading self-storage operators like Big Yellow and Safestore have a healthy pipeline of new developments
“House moves [only] account for about 20% of self-storage users, so [even] if that went down and something else up, there’s a broad set of customers still at large,” he adds.
Given that the government’s stamp duty holiday allowed the housing market to remain active during lockdowns, the sector has not been adversely affected by a drop in occupancy rates from people moving house.
Typically, occupancy levels consistently remain pretty high at self-storage centres.
“You don’t get massive occupancy drops in self-storage; it doesn’t happen,” says Close. “You’re not going to lose 10% of your customers in one month. Occupancy moves up and down at 1% to 2% at a time. You’re not going to have a big dip from, say, a big tenant moving out.”
What you do tend to get is a steady churn of people using the space and of ‘move outs’ – industry parlance for people leaving self-storage space.
Schafer says that one of the upsides of the pandemic is that enquiries for storage space from commercial customers have remained strong throughout the past 12 months from businesses large and small.
“Small businesses start off in a home, then outgrow that space and turn to the sector as a solution,” he explains. “At the same time, big businesses are downsizing; they want to get rid of warehouse space and look at self-storage as a flexible solution.”
Attractive asset class
Self-storage space is not only proving popular with a broad range of users; it is also an attractive alternative investment asset class.
“The operators we deal with are inquisitive and aggressive in their approach to acquiring assets and are willing to pay fair prices, but when a bidding war goes on, operators will bid beyond the market value to secure stocks,” says Macauley.
However, Schafer says that investment has been held back by the fact that the industry is still relatively small.
“There is a limited opportunity for investors to get involved, unless they’re going to build and develop themselves,” he says. “There is not a lot of these properties being sold and there is a limited number of them on the stock exchange.”
The cost of developing self-storage sites can vary significantly. At the lower end of the spectrum an operator could pay as little as £50,000 to create a shipping container-based self-storage park.
All change: Rennie Schafer, CEO of the SSA, says ‘people often come to self-storage during life-changing moments’
“On the other end, you can spend £8m or £10m on a purpose-built store in the middle of London,” says Schafer. “There are different models, and each are viable. There’s a market for container storage in regional areas. There’s a market for premium, high-security places in central city locations that are easy to access, and both have a different cost structure.”
A lot of the demand for self-storage space is in the South East and particularly around densely populated areas like London where storage space in residential properties carries a premium.
As a result, it comes as little surprise to hear that the “South East across the board is where it appears operators generally want to be,” according to Macauley. “But more and more [operators] have gone regional. Cinch Self Storage bought two units, one in Leighton Buzzard, Bedfordshire, and the other in Letchworth in Hertfordshire [last year]. In addition, L&G also acquired two units: one in Bury, Manchester, and the other in Litchfield, in Basingstoke.”
Last year, SureStore – a preferred developer for a number of institutions, including L&G – announced plans to open 10 sites by the end of 2021, most of which will be in the north.
“We’re seeing further development in regional cities,” confirms Schafer. “We’ve always had good demand in London, Manchester and Birmingham. We’re seeing more container sites in rural places, so very small regional towns that wouldn’t have had self-storage in the past and are starting to get small establishments.
“Places like York, which had very little purpose-built self-storage three or four years ago have [now] got five in the process or newly developed self-storage stores, which are premium.”
Many of the leading operators like Big Yellow and Safestore have a healthy pipeline of new developments in place to ensure they are well-positioned to capitalise on the strong position the self-storage sector finds itself in at the moment.
Schafer is confident that over the coming months, demand for self-storage space will enjoy strong growth regardless of what happens with the pandemic, as the range of users continues to broaden and as awareness of the sector continues to grow.