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Storage wars: How does your self-storage facility rate?

6 Feb 2018
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Industrial Self Storage
6 Feb 2018

In the latest edition of Self-Storage Association Australia’s (SSAA) magazine, Insider, Urbis Senior Valuer Tim Creighton outlines the development of new initiatives to benefit the self-storage industry.

The investment profile of self-storage continues to evolve following the December 2013 listing of National Storage REIT (NSR) on the Australian Stock Exchange (ASX).

To stand alongside other mainstream asset classes, the self-storage industry will increasingly be challenged to provide greater market transparency and elevate the production of meaningful professional data.

Presenting at the 2017 SSAA Owners Summit, Tim along with Urbis Director David Blackwell, shared with the audience two Urbis initiatives set to positively impact the self-storage industry. Considered significant developments in the progression of self-storage as a mainstream asset class, the two programs unveiled are:

  • Urbis Self-Storage Grading System (Grading System)
  • Urbis Self-Storage Supply Tracker (Supply Tracker)

Transparent Benchmarking: Urbis’ Grading System

At present, all self-storage facilities are grouped under the umbrella term ‘self-storage’. However, a purpose built self-storage facility in an affluent metropolitan area should be differentiated from a regional self-storage facility that is managed off-site by a local real estate agent.

The application of asset grading is a well-established practice in the real estate industry, particularly for commercial office buildings and shopping centres. The formulation of an asset grading system specific to self-storage (the first of its kind in Australia and New Zealand) was undertaken in close consultation with both internal and external industry stakeholders.

Figure 1

Industry stakeholders considered the importance (weighting) of nine key features in assessing the grade of a self-storage facility. The key features comprised both location and asset based features (as shown in Figure 1). Results showed that location based features ‘Area’, ‘Demographic Profile’ and ‘Competition’ derived the highest weighting – they were considered most important. 

“

We believe the grading system is a good incentive to raise standards across operators throughout the industry.

Thomas Whalan - Rent A Space Self Storage

A tenth feature, ‘Financial Performance’, was initially included, but later removed following further stakeholder engagement. The financial performance of a self-storage facility was recognised as a product of the nine key features, and its exclusion would allow self-storage facilities recently built or in occupancy build-up to be comparatively analysed.

The Grading System provides a transparent analysis tool for the grading of self-storage facilities. Users assign a rating from 1 to 5 (with 5 being the highest) to each of the nine key features applicable to a specific self-storage facility. Based on the respective weightings of the key features, the Grading System generates an overall score out of 100 and accompanying grade (as shown in Figure 2). The highest grade of Premium represents an overall score above 85.

Figure 2

The Grading System is a self-assessment tool. The validity of the Grading System is dependent on the level of objectivity applied by the user and is not a measure of return on investment, nor an assurance of financial performance.

Informed investment decisions: Urbis’ Supply Tracker

Self-storage development is typically stimulated by at least one of the following features (identified within a potential customer catchment area):

  • A perceived undersupply – where self-storage supply does not cater for self-storage demand;
  • Significant population growth forecasted – where increased self-storage demand is anticipated; or
  • Strong self-storage demand drivers (household income, percentage of renters, percentage of apartment dwellers) – where the key demographic characteristics support high levels of self-storage demand.

Stakeholders and market observers regularly ask what the growth of the self-storage sector is. The self-storage industry is experiencing an unparalleled level of self-storage development in major metropolitan locations.

The Supply Tracker monitors new self-storage facilities and provides an interactive database for industry participants to make informed investment decisions.

For confidentiality reasons, the disclosure of a new self-storage facility requires a lodged development application at the minimum. However, some contributors have acquired a site for a new self-storage facility and requested disclosure prior to the lodgement of a development application to ‘mark their territory’.

“

The supply tracker will be a very influential data point for industry operators in their investment decisions. As the largest single developer of new self-storage supply in Australia, to have a consolidated place to examine the potential supply will be extremely helpful as we consider our acquisition opportunities.

Sam Kennard - Kennards Self Storage

The Supply Tracker is currently monitoring 35 new self-storage facilities across the four major metropolitan markets of Sydney, Melbourne, Brisbane and Auckland (New Zealand). Key observations to date:

  • 28 new self-storage facilities (80%) will comprise purpose built self-storage buildings;
  • 9 self-storage facilities (~26%) will be owned by new market entrants; and
  • The new self-storage facilities will represent self-storage growth of between 11% and 12% for the major metropolitan markets (apart from Melbourne – 8% to 9%).

The long-term reliability of the Supply Tracker, its extension into other metropolitan markets (such as Adelaide, Newcastle, Perth, Wellington, New Zealand), and the associated industry research produced are reliant on the ongoing participation and support of SSAA members.

The future of self-storage

The institutional transition of the self-storage industry will require continuous education of the wider investment community. Some still consider the hotel industry, where occupancy can decrease by 50% overnight, comparable.

Research highlights the correlation between product knowledge (of self-storage facilities) and self-storage demand. The investment profile of self-storage will similarly benefit from sustained initiatives and research projects that provide a greater understanding of the self-storage industry, particularly to external stakeholders (financiers, analysts, investors) and new market participants.

Tim’s article first appeared in the Dec/Jane edition of SSAA’s Insider Magazine.

Find out more

Urbis is excited to help shape better practises for the self-storage industry.

To find out more about these programs, or if you’d like to contribute to the Supply Tracker, contact Linda Sharkey. 

Boom in self-storage units as more Australians take to apartment living

Urbis Storage Index – September 2017

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