Self-storage centres emerged in Australia in the late 1970s following the development of the self-storage industry in the United States. Today, there are more than 1,000 self-storage centres in Australia.
While customer awareness, professional management and institutional investment in the Australian self-storage industry have progressed steadily over the past 40 years, Self-storage is still seen as an emerging industry in its growth phase.
Self-storage offers some highly attractive attributes, most notably:
- Fragmented industry – with major players controlling only 49% of major metropolitan markets
- Favourable demand and drivers – 2/3 of demand comes from residential users; with the balance commercial users; shift to medium/high density living; and resulting reduction in household storage; downsizing empty-nesters; housing affordability and lower home ownership levels
- Undersupply – Australian supply levels of storage space per capital are much lower compared to an average of 0.5sqm across the US
- Good cash flow dynamics – 75% of rent roll typically comes via credit card/direct debit and monthly in advance
- Dynamic pricing
- Profitable – high gross margins of +65%
- Low capex requirements
These attributes have provided solid performance for the sector in recent years, as expressed by constant rental growth and rising occupancy.
Self-Storage in the U.S.
Self-Storage in the US is a mature industry and is often seen as a guide to further growth and demand for self-storage in Australia. According to the US Self-Storage Association, the country now possesses some 1.9 billion square feet of personal storage, in nearly 40,000 facilities.
Demand is more prevalent in the US with roughly 11% of American households using self-storage, compared to only about 5% of Australian’s at present.
Australian supply levels also look low when compared to the US, with 0.15sqm of storage space per capita compared to an average of 0.50sqm across the US.
In recognition of the maturity of storage in the US there is a number of specialised storage REITs: Sovran Self Storage (SSS); Cubesmart (CUBE); Extra Space Storage (EXR); and Public Storage (PSA).
The US self-storage REITs have established credentials delivering some of the best real estate investment returns in the past decade, underpinned by solid real estate fundamentals.
Industry Players & Fragmentation
There are roughly 1,400 self-storage centres in Australia.
The industry remains fragmented by brand and by ownership, with three major groups – Storage King, National Storage, Kennards – having a combined market share of less than 30%.
In recent years there has been a trend towards consolidation in the industry, and it is expected this trend will continue given the advantages and economies of scale in terms of: brand recognition; operating costs; and management systems.
Self-storage is supported by the following key demand drivers:
- Increased inner-city high density apartment style living – a shift to apartment living naturally results in a reduction in household storage space. Over the past two decades Australian cities have become denser and apartment living more prevalent, as building approval data demonstrates.
- Ageing population downsizing their principal residence – Like most western countries, Australia has an ageing population. We therefore expect a commensurate increase in the number of people downsizing their principal residence.
- Increased number of online retailers which require flexible storage space – The business mix at a self-storage centre typically comprises about 70% residential users and 30% small business, and many of these small business users are online retailers. Online now comprise about 10% of traditional retail spending and is growing at more than double the rate of traditional retail sales.
- Housing affordability and the level of home ownership – Poor housing affordability in Australia has led to a contraction in home ownership rates. According to the ABS 66% of Australian’s owned their own home in 2011 compared to 71% in 1996. This trend is even more worrying for those aged between 25-to-34 where home ownership slumped from 52% to 42% over the same period .
Anatomy of Self-Storage
Self-storage centres contain individual lock-up units, generally ranging from one square metre to 20 square metres, with nine square metres being the most common size required by storage users.
Storage units are typically rented on a month to month basis with a minimum term of one month, and can generally be terminated by giving two weeks to one month’s notice. Payment is usually by credit card and automatic direct debit.
The business mix at a self-storage centre typically comprises about 70% residential users and 30% small business/ corporate users. In many self-storage centres, the internal space can be reconfigured to produce variations of unit size to optimise income based on customer demand.
The key business divers of a self-storage facility are:
- Occupancy – optimised level of occupancy, sourcing customers, target markets
- Rate – strategy re rate increases, dynamic pricing model
- Ancillary sales/other income – sources and target levels
- Managing cash flow
- Approach to advertising
- Management of staff – systems/training etc
- Other key costs & buying power benefits
Revenue & Expenses
Self-storage centres generally operate with occupancy of 80%, if they are mature.
Approximately 95% of its income is rental based. Pricing typically varies with unit size and smaller units typically achieve higher rates per sqm.
Most operating expenses are fixed and comprise about 35% of total income with the major components being labour and rates/taxes.