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All the Signs of a Mature Market

30 Oct 2016
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Urbis Urbis Newsroom

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Industrial Self Storage
30 Oct 2016

The growth of National Storage Real Estate Investment Trust (NSR) as self storage specific listed investment has heightened awareness of the self storage industry in financial and banking sectors.

NSR has successfully continued to build its portfolio through acquisitions and now has 94 storage facilities throughout Australia and New Zealand. NSR’s FY 2016 results showed total value of assets at approximately $620 million. 

In June 2016 NSR completed their largest transaction with the acquisition of the 90% interest in the 26 facilities (13,000 storage units) in the Southern Cross self storage portfolio (controlled by Heitman) for a reported $285 million. NSR has also completed an additional 26 acquisitions in Australia and New Zealand in FY 2016. These additional acquisitions totalled approximately $232 million and added 16,000 square metres of storage space to their portfolio. 

Other Major Investors

The two other major investors in the Australian Self Storage industry Australia are Kennards Self Storage and the Abacus Property Group.

The Abacus Property Group is a listed trust with diversified real estate assets, with a value totalling $994 million. Self storage assets within the Abacus Fund have a value of $574 million and represent 38% by value all assets held by Abacus. The self storage component of their fund is seen by investors as providing both excellent cash flow stability and revenue growth. Abacus facilities are managed by and carry the Storage King branding.

The Fund has continued to increase their investment in the industry with an active acquisition program and now own 62 facilities throughout Australia and New Zealand. They are active buyers in the market with a focus on established facilities in the major metropolitan markets. They are in the process of acquiring an additional 3 assets that will add more than $30 million to their portfolio of self storage assets.

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Kennards Self Storage was the pioneer of the self storage industry in Australia. They were the first to open a self storage centre in Australia.

Kennards Self Storage was the pioneer of the self storage industry in Australia. They were the first to open a self storage centre in Australia. They currently operate 82 facilities throughout Australia and New Zealand. The value of Kennards self storage assets exceed $1,200 million. Their last acquisition of established facilities was in 2015, however they have utilised their substantial in-house construction management team to develop new, state-of-the-art facilities in Macquarie Park, Sydney (1,000 units); Frenchs Forest, Sydney (600 units); North Melbourne (800 units) and Mittagong outer Sydney (463 units).

They have new projects under construction at Murarrie (Brisbane), Chullora (Sydney) and St Marys (Sydney). Kennards completed a major expansion of their Waterloo facility in December 2015 to increase the capacity of this facility to in excess of 3,000 units. This makes this facility the largest facility in Australia.

Second tier operators

In addition to the large ownership groups there is a group of strong, second tier, experienced operators holding very high standard facilities. These include:

  • U-Store-It (8 large scale facilities, Adelaide in South Australia);
  • Rent-A-Space (14 facilities in prime Sydney locations);
  • Fort Knox, Melbourne (large scale facilities in Melbourne);
  • Storage Choice (9 facilities Brisbane and North Queensland) and
  • Fort Knox Group Brisbane (22 facilities Brisbane and North Queensland).

Future Challenges and Opportunities

The heightened awareness of the self storage industry and potential returns has stimulated record level of investment in new facility construction. Urbis analysis suggests the self storage supply levels will increase by more than 10% in Sydney, Brisbane and Melbourne markets over the next 18 months.

Urbis research also shows storage fee rates increases are constrained with average fee rates increasing by between 2% and 3% p.a. Increases in supply will put further pressure on the ability of facilities to increase storage fee rates.

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Competition for the purchase of quality established self storage investments and record low levels of cost of debt has driven self storage investment yields to all-time lows.

In the current environment of strong investor demand and with major holders looking to further expand their portfolios these holdings are of increasing strategic value. Competition for the purchase of quality established self storage investments and record low levels of cost of debt has driven self storage investment yields to all-time lows.

Industry valuers are of the opinion that equivalent investment yields (yields at mature occupancy) are within a range of 7.5% to 8.0%. Acquisition of facilities at less than mature occupancy show substantially lower initial yields often in the 5% to 6% range. Urbis is of the opinion that yields will compress further and the market has not yet been tested for an A+ grade self storage asset sale.

This article first appeared in the Self Storage Association Asia In Store Magazine – Issue 6. 

 

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