Why investors are eyeing self storage in Europe
Europe’s self storage sector is inherently under-supplied and offers predictable cash flows
Self storage around the world is an alternative choice for many investors, but the fast growing European market and stable returns it offers are making it top choice for investor dollars.
Rising consumer demand for self storage shows no signs of abating with occupancy rates hovering around 80 percent since 2016. In dense urban centres such as London, shrinking dwelling space coupled with a growth in demand for rental accommodation has led to an unprecedented proportion of people seeking external storage facilities.
“Europe’s self storage sector is inherently under-supplied and offers predictable cash flows,” says Ollie Saunders, lead director of Alternatives, JLL.
“We are seeing above inflationary growth in most European markets. Operators want to grow by 10 percent per annum – though they are restricted by the land market and financing options.”
About a third of self storage customers are commercial, with startups, small businesses and online retailers using the space as a flexible solution for stock overflow as well as product distribution.
With the European startup sector booming, corporate demand is set for continued increases.
Now, new operators are entering the European market, increasing the number of facilities and driving the development of this emerging sector, which is providing opportunities for investors.
Investors are thinking big
Big investors are taking note. Last year, investment fund Schroders invested in self storage for the first time, buying British firm The Self Storage Company and its five self storage units in London.
In the last twelve months, there have have been strong levels of transactional activity on the continent, with the majority of transactions taking place outside of the UK for the first time
Established players in mature markets are developing bigger, higher-quality modern buildings and entering into selective mergers and acquisitions. The UK’s Armadillo Self Storage, which acquired 1 Storage Centres in Newcastle and Gateshead and Store It 4 in Stockton, added moreh than 12,00 square metres of lettable space to its portfolio while, in Sweden, Shurgard acquired around 24,500 square metres in five freehold regional properties from Stockholm-based Pelican, growing its portfolio to 36 facilities in the country.
Yet the fragmented nature of Europe’s self storage market may initially exclude larger investors. While 82 percent of European self storage facilities are concentrated in six countries – with the UK leading the sector, followed by France and Spain – the ten largest brands command just 23 percent of the sector and 39 percent of the square footage. Furthermore, there’s an absence of mid-tier operators and an abundance of smaller, independent providers.
New ways to enter the market
The sector’s high predicted growth levels, however, are a strong incentive for investors of all sizes.
“The outlook for the self storage sector in Europe has plenty of room for both the independents and the big players, with a variety of ways for new capital to invest in the market,” says Saunders.
“Most investors buy existing assets and platforms, but struggle with the fact that there are not that many large portfolios of self storage facilities. US$50 million would be a big investment in storage yet there are investors in the U.S. looking to deploy hundreds of millions of dollars – and as a result they may not enter the market.”
New investors may therefore concentrate on new finance models for development sites to accelerate building, such as DBFO structures and joint ventures with funding partners.
“There are some young portfolios which are growing steadily, and some more established players who are both consolidating and developing new stores,” Saunders says. “With good macro and demographic fundamentals, the next few years should see this entrepreneurial sector continue to evolve.”
While self storage as an investment sector is far more developed in the United States and Australia, the markets across Europe are only now gathering steam in terms of both customer take-up and the square footage available.
Germany and Central Europe are among the markets tipped for growth, with self storage projects in the pipeline and rising demand in larger cities. “Across Europe, the self storage market has strong fundamentals and big potential. We just need some more entrepreneurs in these markets to pick up on the opportunities and really get them going,” says Saunders.
Although it’s unlikely that the amount of self storage space per person will ever reach the same level as that in the U.S, largely due to factors such as the availability and price of land, there’s still more than can be done to build a potential customer base, which is essential to the ongoing growth of the sector.
“There are still low levels of consumer awareness about the self storage industry,” Saunders says. “For greater uptake across Europe, providers should enhance their visibility online, making their product easier to find for the digital-savvy consumer.”
And with more consumers becoming aware of the potential of self storage, investors should do the same.
Click to read about why Germany’s smaller industrial properties offer big potential.