The Rise and Rise of Australian Self-Storage

By Kyle Richardson, Head of Commercial Valuations, CBRE Australia 

Growing end-user demand

Self-storage demand is booming in Australia as a culture of consumerism, e-commerce growth, shrinking living spaces and rising population drive demand from individuals and families for secure and convenient facilities for storing personal belongings.

Business expansion and contraction are also generating new requirements, with an increasing number of small and medium sized companies utilising self-storage for a range of commercial operations and even as last-mile distribution points for parcels.

More recently, the economic fallout from the pandemic has spurred new demand from business owners utilising self-storage to reduce costs and increase flexibility. Demand has also risen from white-collar employees needing to clear space at home to create home offices as a result of the introduction of remote-working.

The investment case

Australia and New Zealand are home to around 2,000 self-storage facilities. These include a growing number of sophisticated purpose-built multilevel properties featuring drive-up access, designated bays for drop off and pick up and features such as climate controlled zones for storing specialised goods such as wine.

Along with its growing number of high-quality facilities and local and diverse sources of end-user demand, self-storage boasts several compelling attributes. While there exist some challenges to industry maturity, many investors increasingly view self-storage as one of Australia’s most robust property classes for investment.

Unlike other commercial property sectors, occupancy agreements for self-storage facilities do not commonly feature incentives. This ensures investors obtain true effective rental cashflow: a quality that is also viewed favourably by lenders.

Effective yields of between 5.5-6.5% comfortably eclipse those of other property classes and have continued to firm since the onset of the pandemic. Further to this, industry revenue in Australia’s self-storage sector is expected to grow 0.5% annually to $1.5 billion – including a 1.6% spike in 2020 due to e-commerce growth as a result of the COVID-19 pandemic. 

Australia’s self-storage industry is also characterised by a fragmented operating environment comprising of large listed groups, chains and independents. 

This creates opportunities for major investors to acquire underperforming assets and then raise operational standards through leveraging their market expertise to boost value within a relatively short timeframe: a far simpler undertaking than doing the same with a shopping centre. 

Many self-storage properties in Australia are also well-located in inner city areas and can be converted into alternative higher density uses such as residential should self-storage demand ever fade, however unlikely that may be.

Investor demand has been robust through the pandemic, with market leaders National Storage REIT and Abacus purchasing 19 and 11 self-storage facilities, respectively, in the 2020 financial year.  Despite the impact of COVID-19, well over $300 million of self storage facilities transacted in calendar year 2020.

While large investors are expanding, there is still plenty of room for smaller players to build up and sell portfolios. Synergy can be achieved through purchasing or developing adjacent or nearby properties to create a hub and spoke system, thereby growing revenue without affecting the cost base.

Self-storage valuation

As with other special-use properties such as motels, pubs and caravan parks, valuations of self-storage properties are typically conducted on a going-concern basis.

This means that valuers analyse factors such as quality of management along with more traditional criteria including location and building specifications.

The often-significant disparity in expertise among operators, who range from large professional groups to smaller independent providers, can result in a widely different performance among individual properties. This poses a challenge for valuation professionals seeking to perform accurate valuations.

However, some operators are now adopting sophisticated management software similar to that deployed in the aviation industry to optimise pricing and overall revenue generation. As the technology improves and is widely adopted, more operators will be able to enhance the returns generated from these facilities.

Australia’s self-storage facilities are rapidly becoming more attractive and accessible through the introduction of 24/7 operations, enhanced security, and bolt-on services such as mobile pick-up and drop-off.

These criteria and more may eventually come into play as demand for valuations in this robust sector continues to grow.

References

Caldwell, J. (2020). Self-storage services in Australia. What’s in store: Revenue growth is set to accelerate, despite increasing competitive pressures. IBISWorld