What’s in store for the self-storage sector?

This article appeared in the April 2022 issue of Property Week, by Noella Pio Kivlehan

For many, the pandemic has been a story of disruption, delay and even disaster, but for a few sectors, the impact of Covid-19 has been positive. One of those outliers is self-storage.

Occupancy hit 82% last year, up from 76.2% at the start of 2020, the highest since records began in 2004, according to the UK Self Storage Annual Report 2021, while returns climbed from £22.82/sq ft in 2020 to £24.66/sq ft this year.

Thanks to growth in space of more than 5%, there is nearly 6m sq ft of additional occupied self-storage space than there was at the start of the pandemic two years ago. There are now just under 2,000 self-storage ‘stores’ operated by 998 brands. But will the growth spurt continue – or will demand revert to pre-pandemic levels?

Opinion is divided among the sector’s biggest operators. Some predict sunny climes while others warn of darkening clouds.

Philip Macauley, partner and head of self-storage at Cushman & Wakefield, believes there will be no slowdown in the market “any time soon” up to 2027 and beyond. “We have a long way to go in terms of where we are as a market,” he says.

Obvious drivers of the market have been the strong housing sector and people decluttering their homes to create working from home office space during the pandemic. Some of this demand could tail off, but Macauley believes some of the decline could be mitigated by the change in people’s shopping habits to online, which has resulted in businesses, like SMEs, having to store more stock. This need is “not going to fall away”, he says.

Investors’ interest has also been piqued. “We are seeing new money coming in – institutional and private equity,” says Macauley. “Institution wise, Legal & General has been making a sizeable play in the UK market in the past 12 months. It will buy, invest and develop a facility and drop in an operator on a management agreement who will run the business, and L&G will pay them a base fee, and have their rates for achieving X-percentage profit.”

Rennie Schafer, chief executive of the Self Storage Association UK, however, is more cautious about the outlook because of increasing business rates, energy, staffing, packaging and insurance costs. Then there are the land issues.

The cost of expansion or developing new sites has also risen due to the increasing price of steel and other construction costs

Rennie Schafer, Chief Executive – Self Storage Association UK

“Competition is high for the purchase of quality existing assets, with some recent sales indicating cap rates below 5% as more institutional investors look to enter the market and existing operators seek to grow. Land for development is also scarce and fiercely competed for.”

According to Schafer, this is leading some operators to look for alternative development opportunities such as the mixed-use sites being developed by Lok’nStore in conjunction with Lidl supermarkets – or smaller unmanned sites using automated technology, mobile device access and online booking systems being developed by independent operators.

To gauge opinions, Property Week canvassed key operators for their views on the effects of Covid and what is in store for the self-storage sector.