The self storage business has risen from almost nothing two or three decades ago to become a recognised part of the property industry today. Here we’ll look at what self storage offers as a potential property investment opportunity.
There are different variations on the idea. But in simple terms self storage involves renting out an industrial or commercial unit for storage purposes, but sub-dividing it to let to many occupants on flexible terms.
Demand for self storage is rising
Today we all tend to have more ‘stuff’ but average house sizes haven’t increased much. Self storage is attractive to many people as it’s easier and cheaper to use self storage than to move house.
Self storage also serves those who are between house moves.
Self storage is also an easy logistics solution for small and home based businesses who need to store stock.
The Self Storage Association UK (SSAUK) trade body estimates that there are now around 2,050 self storage sites in the UK. It says there is around 52 million sq.ft of storage space in total and the turnover of the whole industry is around £930 million.
SSAUK say that their figures indicate that demand for the product is growing at a faster rate than supply.
The self storage business appears underserved in many areas
Safestore and Big Yellow are the largest brands by number of sites. However, while the large self storage operators are present in most larger towns and cities smaller towns often don’t have any self storage facilities at all.
SSAUK say that around a third of self storage sites are run by large operators, who have a market share of around 40%.
Self storage is easy and cheap to set up compared to other kinds of investment
Self storage businesses are usually located in industrial units in commercial areas rather than prime locations. Suitable units are relatively cheap to buy compared to other types of property.
Self storage can also be operated on a rent-to-rent basis, ie. where you lease rather than buy the unit and then sublet it.
Fit out costs are low. Some self storage services are based around shipping container storage.
Overheads, eg. utility and maintenance costs are low.
Self storage is easy to run
Many self storage units are run on a self service basis. They don’t need to be staffed all of the time.
Very importantly, the complex rules and regulations that apply to residential lettings just don’t apply to self storage lettings. You don’t need to bother about tenancy laws, ASTs, landlord licensing or meeting fitness for human habitation standards.
Tenants in self storage usually take space on flexible terms. They can rent by the week or month on an easy in-easy out licence basis and pay as they go.
Self storage space can earn attractive rents
SSAUK say that the average rental rate of self storage is £26 per sq.ft. This is a 9% increase over last year. They add that occupancy rates for self storage are about 83%. This is pretty good compared to the wider commercial market.
Yields for letting out a commercial property as many small self storage units are likely to compare well with letting it out as a single unit. Self storage yields are likely to compare well with residential yields too.
Possible good investment potential
As well as the income, the capital value of a self storage unit is likely to at least keep pace with commercial values generally. It could even outpace them if demand continues to rise.
A well run self storage business could potentially be sold as a going concern in future.
Some points to consider when investing in self storage:
Location, location, location. As with any property business location is all important. Check supply and demand.
Find out what existing self storage businesses are in operation in the area. Find out if any new ones are being planned. Try to get an idea of what the occupancy of existing units is.
Check local demand – try to find out what is there a need for or a shortage of. Self storage businesses typically offer a mixed range of units between 15 sq.ft. and 200 sq.ft. so as to cater for a wide range of customers.
Check likely achievable weekly/monthly rents and calculate your yield. Rents may be significantly higher in cities where demand is high and storage space is at a premium. These levels may not be achievable in other areas (but overheads should be much lower).
Security. Good security and good access control is essential. These are amongst the factors prospective customers are likely to value most highly when looking for self storage space.
Insurance. It’s usual for the self storage operator to provide buildings insurance but they do not insure the contents of a customer’s storage unit. Customers should be advised that insurance for their contents/goods is their responsibility.