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Shelf life: What contractors need to know about the growing self-storage market

Safestore jpg

UK self-storage sector has expanded in recent years but still represents a niche market for contractors – yet one that can provide a solid stream of work for those in the know.

A time traveller from the 1980s would probably be baffled by the colourful and shiny self-storage sheds that now garnish the UK’s arterial roads.

Thirty years ago the industry was largely confined to the US, and the thought of paying to store one’s excess possessions rather than boxing them up in an attic or garage would have seemed absurdly extravagant.

Self-storage in numbers clients and markets

Self-storage in numbers clients and markets

However, whether it’s because we have more stuff or less space to store it in, self-storage is now a well-established business on this side of the Atlantic.

The Self Storage Association UK (SSA UK) estimates that there are now 1,077 such sites scattered around the country, representing around 37.6m sq ft of storage space.

In 2015 that figure increased by some 1.9m sq ft and SSA UK chief executive Rennie Schafer expects the industry to expand by a similar degree in 2016.

“2015 was a good year for the industry in every measure. It had significant growth and improved occupancy rates and revenues,” he says. “The returns for the first half of 2016 have been good and occupancy rates have been holding if not increasing in most locations.

“There is a degree of uncertainty with Brexit, but the industry has a proven record of getting through economic downturns and other challenges pretty well. Given that occupancy rates are now better than they were before the 2008/09 recession, there is nothing to indicate that it’s not in a strong position to weather any economic changes.”

Big market players

SSA UK estimates that around a third of UK self-storage facilities are held by large operators with 10 stores or more.

Big Yellow Storage

Big Yellow Storage

Big Yellow Storage is among the operators with more than 20 UK stores

Of those, Safestore is the biggest with 95 stores, while Big Yellow, Access Self Storage, Lok’nStore, Shurgard and Storage King all run portfolios of more than 20 stores. Their facilities tend to be bigger than those run by smaller enterprises and consequently account for about half of the total market turnover and space available.

For contractors looking at which clients to target, it’s worth noting that the sector has seen some consolidation activity in recent years, with several smaller chains absorbed by the major operators. In the latest such deal, Safestore acquired 12 properties from Space Maker at the end of July for £43m.

Most of the big operators are expanding: Safestore aims to open five new stores and two extensions totalling 217,000 sq ft before the end of 2016.

Big Yellow opened a store in Cambridge in January and will add another in Guildford before then end of the year. The company has also recently purchased two London sites in King’s Cross and Camberwell.

“We decided to put two or three sites on hold after Brexit, but we have already had our initial conversations and the way things are going we will go back and carry on with the purchase of those sites”

Emil Sohrab, The Self Storage Company

Shurgard is on the hunt for three or four new sites around London each year, while Access has recently opened stores in Hemel Hempstead and Catford, south-east London, with several other sites in the pipeline.

Lok’nStore chief executive Andrew Jacobs says that, following the opening of new stores in Southampton and Chichester this year, his company has acquired further sites in Gillingham (Kent) and Wellingborough (Northamptonshire). “There are several other sites we are working on that haven’t been announced yet,” he adds.

Despite the expansion of the major players, much of the market remains in the hands of small, independent operators. Some are family businesses attracted by the steady cashflow that self-storage generates. Others are run by entrepreneurs looking to build up a portfolio of stores to sell on to the big publicly listed operators.

Self Storage Co 4

Self Storage Co 4

The Self Storage Company is among the fastest-growing independents

One of the fastest-growing independent operators is The Self Storage Company, based in Hertfordshire. It operates three stores and is building another at Apex Corner in north London. Construction of two further facilities in Marylebone and East Molesey in the south-east of the capital is scheduled to begin shortly.

Managing director Emil Sohrab says: “We also had two or three other sites we were in the middle of negotiating. We decided to put those on hold after Brexit, but we have already had our initial conversations and the way things are going we will go back and carry on with the purchase of those sites.”

Location and visibility crucial

SSA UK research shows that the number of self-storage facilities opened annually languished at 8-10 a year between 2011 and 2014 before increasing sharply to 26 last year, although five of those were sites that use shipping containers to store goods rather than buildings.

“In the context of the wider construction sector, self-storage is a pretty small-ish niche,” says Oliver Close, a partner at Cushman & Wakefield, which produces the annual industry survey on behalf of SSA UK.

“What is notable is that self-storage companies generally don’t manage to meet their expectations about the number of stores they are going to develop and the number of sites they are going to acquire. That is probably because of the difficulties of funding and finding sites.”

“Everything about a site – whether we refurbish or build, take a management contract or a lease – are subsidiary to whether it is in a good location for a self-storage business”

Andrew Jacobs, Lok’nStore

Ollie Saunders, head of self storage at property consultancy JLL, adds: “At the height of the market, if operators were opening 10 stores a year they were doing well. Now we would see three stores per portfolio per year as a good result.”

Mr Jacobs argues that the chief constraint upon growth in the industry is not lack of customer demand, or of capital to invest, but a shortage of suitable property for new stores. “Self-storage is all about finding the right sites,” he says. “That is very difficult, although we are in a fairly rich vein of form at the moment. It is generally the limiting factor in the industry.”

In spite of consumers’ increasing use of technology to access the market, self-storage operators are still fussy about the visibility of their sites. “The way that self-storage is sold has changed,” Mr Saunders says. “It is very much online platforms. Search engine optimisation is where all the action is, but it is important to have a strong physical presence as well. There is a clear upside to being in an easy-to-get-to, visible location.”

Active Supply and Design internal fit out

Active Supply and Design internal fit out

Historically, most stores have been refurbished industrial and distribution buildings

Few such highly visible and accessible sites come to the market and those that do are frequently the subject of competitive bidding from developers seeking to utilise them for retail, trade counter, roadside, hotel, leisure and sometimes residential uses.

When the industry first established itself in the UK, most stores were created within refurbished former industrial and distribution buildings. Big self-storage chains have increasingly concentrated on purpose-built units, but refurbishment is still a popular strategy, particularly with smaller operators, as it requires less upfront capital expenditure.

Mr Jacobs says around 60 per cent of Lok’nStore’s portfolio is purpose-built, but refurbishments remain an option: “We started the business in 1995 and didn’t build anything until 2006. It is a much bigger project if you’re building from scratch and we were finding old buildings in nice positions so we didn’t have to build.

“Since 2006 new build has been the thrust of what we are doing, but if there is already a reasonable building in the right location, then perfect. All the other things about a site – whether we refurbish or build, take a management contract or a lease – are subsidiary to whether it is in a good location for a self-storage business.”

Where are self-storage units today?

Over the past 30 years self-storage centres have gradually migrated from industrial estates to retail areas. Mr Jacobs says: “We used to describe our perfect location as on the front corner of an industrial park, but in the last few years we seem to have moved on to the retail parks. Our recent sites have been next door to a Tesco.”

All of the big UK operators are focused principally or wholly on London and the South-east. SSA UK’s figures show that 60 per cent of the country’s self-storage space is located in that area, and London has twice as much self-storage provision per head as the rest of the nation.

Lokn Store Maidenhead

Lokn Store Maidenhead

The Lok’nStore in Maidenhead shares its ground floor with Lidl

The region’s dense population, many of whom live in small flats and have a comparatively high income to spend on renting storage space, make it a natural heartland for the industry. However, there is growth in the UK regions too, with Manchester and Birmingham in particular attracting investment, mainly from smaller self-storage businesses.

For new-build projects, self-storage operators typically look to acquire sites around half a hectare in size to accommodate a square building footprint of 20,000 sq ft, so that a three or four-storey building has a gross area totalling 60,000-80,000 sq ft, producing a net lettable area of 40,000-60,000 sq ft.

“People now expect self-storage buildings to look interesting and the better operators have quite bright and airy facades with plenty of glazing”

Rhys Warren-Thomas, Lok’nStore

Store sizes across the UK vary from 5,000 sq ft to 90,000 sq ft of lettable area, according to the SSA UK survey, with most stores falling in the 30,000-50,000 sq ft range. The latest ‘fourth generation’ self-storage buildings are very different to the repainted distribution sheds that used to characterise the sector.

“We have recently been producing buildings that have a much more retail-type customer-facing look than they would have done 5-10 years ago,” says Lok’nStore director of construction Rhys Warren-Thomas. “People now expect self-storage buildings to look interesting and the better operators have quite bright and airy facades, with plenty of glazing so people can see what is going on inside. In the locations that work best for us, it also suits the planners to have something that looks smart and a little unusual.”

Buildings are also getting bigger. Several of the major operators have recently constructed stores of around 100,000 sq ft. They are also increasingly willing to contemplate mixed-use development to secure the most desirable sites. For example, the Lok’nStore in the Thames Valley town of Maidenhead shares the ground floor of its building with a Lidl supermarket.

What contractors must know

A few of the biggest operators, notably Big Yellow and Access, have their own construction arms, but most employ a main contractor to create the building shell, with a specialist subcontractor, of which there are a handful in the UK, conducting the fit-out of the mezzanine floors and self-storage units within.

Urban Locker 1

Urban Locker 1

Urban Locker is targeting inner-city customers that want easy-to-reach storage

Lok’nStore uses this model. “We have a couple of architects and a couple of engineers that we use who work on all our projects, so design is very much to a model and we novate those across to the main contractor, so whichever contractor is selected we get very much the same sort of product,” Mr Warren-Thomas explains.

“They are usually medium-sized contractors – I would much rather my project should be 10 per cent of a company’s turnover than 1 per cent. For the internal fit-out we use a specialist supplier that does most of its work for us. Typically, the contract value would be £2m for the shell and £1.75m for the fit-out.”

Main contractors need to be comfortable constructing buildings as much as 17 m high and capable of working on tightly constrained sites, he adds. Because self-storage companies are keen for their facilities to start producing income as soon as possible, speed is also important. In the latter stages of construction, the completion of the building shell and the fit-out frequently overlap.

”Typically, the contract value would be £2m for the shell and £1.75m for the fit out”

Rhys Warren-Thomas, Lok’nStore

The crux of the fit-out contractor’s job is to maximise the lettable area within the building, says Richard Allen, sales and marketing manager at specialist self-storage contractor Active Supply & Design. “Our design, unit mix and layout, and to a certain extent the height of the mezzanine floors, squeeze as much lettable square footage out of the building as possible, both horizontally and vertically,” he claims.

While the rate at which new self-storage facilities are being established has recovered from its post-recession slump, growth has not yet returned to the levels seen during the 2000s. Could that be an indication that the market is close to saturation?

Mr Jacobs rejects that argument, pointing to figures on the total quantity of self-storage per capita as evidence: in the US there is 7.75 sq ft of storage space per head of population, while in Australia the figure is 1.8 sq ft. By comparison the UK still has only 0.59 sq ft of self-storage per person.

“Wherever there are people and belongings there will be a need for storage,” he argues. “That need may be related to starting a business, closing a business, moving to a bigger house or a smaller one, people dying, people getting divorced, people getting married. It is life events that drive this market.”

In addition, Mr Sohrab identifies a generational change in attitude that favours the industry: “My generation only use self-storage for the short term if they have to, but my son thinks it is normal life to have a unit and it’s not very much money as he perceives it. If you look at the UK stats compared with the US and Australia, there is a huge amount of growth left. We won’t reach anywhere near capacity in my lifetime.”

As the population of our small island grows and its cities become ever more densely populated, the need for storage space is only likely to increase.

For UK contractors, the self-storage sector has the potential to provide a steady, albeit relatively modest, supply of work for the foreseeable future.

No city limit: Self-storage goes metropolitan

Small-scale inner-city self-storage facilities have become established as a substantial niche market within the sector over the past few years.

“The lack of land at prices that make development viable means self-storage will always be a supply-constrained industry, so operators are looking at metro concepts and other ways to fill demand, rather than building bright shiny sheds on one-acre sites on arterial roads,” Mr Saunders says.

Companies such as Metro Storage and Urban Locker lease underground spaces and turn them into self-storage. Their strategy is to tap into an inner-city customer base that wants easy access to storage without the need to drive to a facility in the suburbs.

Urban Locker founder Alex Wingate says: “We slightly buck the trend in that we have a much higher proportion of business customers. A traditional operator will probably have 60-70 per cent residential customers. We are probably 60-70 per cent business customers and our residential customers are more lifestyle-oriented.

“They may be people who live in a small flat and need storage capacity for a winter wardrobe or skis or something like that. We have quite a lot of students storing stuff while they go away for the summer.”

Urban Locker operates a 30,000 sq ft store near Old Street roundabout in the trendy Shoreditch area of London and is planning to convert two more former basement car park sites by the end of next year.

Mr Wingate is also seeking smaller sites for an unmanned self-storage concept. “The internet makes it possible to operate these things virtually, similar to these Amazon lockers that are accessible remotely,” he says.

“The market is definitely there. Central London has a lot of people living and working there without easy access to local self-storage solutions. The limiting factor is finding sites that are suitable. In central London you have quite a few stakeholders, whether that is planning authorities or multiple landlords, each one of which has to sign off on the change of use.”

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