28th February 2023
We have seen in recent years that self storage is growing in popularity. This is especially the case in the UK. However, just because there has been a boost in popularity of self-storage in the UK, does that mean that investing in self storage is a good investment idea? That’s the questions we look to help you answer in this blog post.
But first, let’s look at what self storage is.
What Is Self Storage?
As you drive around in the UK it is likely that you will have seen large self-storage facilities. These are usually very large buildings that look like warehouses. They will often have signage that is very visible. Self storage units are often found on the outskirts of major towns and cities, with more and more popping up over the last decade.
A self storage establishment offers individuals and businesses the opportunity to rent a space. This space is inside and can be rented for a short-term period. The self storage units generally range from between 25 square feet to around 200 square feet. When we say they can be hired for the short term, this could be a matter of weeks, through to a number of months. It really depends on the needs of the person hiring the space.
As public awareness of self storage facilities increases for this flexible self storage solution, self storage units are becoming increasingly more commonplace in our local towns and cities. There are lots of different reasons why individuals and businesses use local self storage facilities too. We look at some of these reasons below.
Why Do Individuals Use Self Storage Facilities?
For many individuals the main reason that they use self storage facilities is for extra space. For some reason they have less space or not enough space for the belongings that they have and don’t regularly use.
There are lots of different social factors that result in individuals needing self storage. For example, the increase in single occupancy houses and families moving home. Couples getting married or divorced may often need self storage facilities too. There is a need for self storage units among those retiring or downsizing too. Students that move away during the academic year and then return home often use storage units for their belongings too.
Across the UK there is a real lack of available and suitable housing for families and single people. This results in them needing to use self storage in both the long and short term. All of these things add to the rising demand of self storage units for private individuals. Research shows that around 64% of all lettable storage space is hired by private individuals.
Why Do Businesses Use Self Storage Facilities?
As well as an increasing need for individuals and self storage units, there has also been an increasing need for self storage units by businesses too. Business owners are frequently using self storage units for the additional storage requirements the business has. Just like the varied needs of individuals for self storage, the needs of businesses are varied too.
Businesses are turning to self storage factories as a storage solution for archive files and paperwork that has to be kept, legally, but doesn’t need to be viewed every day. Paperwork and archive files like these were just taking up room in the office and gathering dust. However, in storage they are out of the way, safe and sound.
Some businesses also use self storage units for the storage of additional or seasonal stock along with office equipment. The storage facilities enable them to meet growing fulfilment needs that are driven by e-commerce. We have also seen some businesses using storage units to store stock that they can buy in bulk and save huge amounts of money by doing so.
One of the great things about self storage for small and medium sized businesses is that it offers flexibility. This is ideal for small to medium sized business that don’t want to make a large capital outlay for storage space, especially when the extra space is only required for a short period of time.
Is Self Storage A Good Investment?
As we have already mentioned, self storage is growing in popularity. It was only one the very few industries that grew during the coronavirus pandemic. Covid changed the way that may of us live our lives and these changes have stayed. Many people are making space for home offices so working from home is easier. Some people are consolidating their homes and others are downsizing. These things have all meant that additional storage is required by many.
It isn’t new news that the homes in the UK are smaller on average than homes elsewhere in the world. Along with multiple reports telling us that decluttering is good for mental health as it helps us destress – there has been a real interest in self storage. These things all add to the general need for storage facilities and why investing in self storage could be a good investment option for you.
Below we share some insights of the self storage industry to help you see that demand for self storage. You can use this to help you decide if self storage is a good investment for you and your hard-earned money.
What Is The Current State Of Demand For Self Storage In The UK?
Demand for self storage in the UK is increasing. This can be seen across the board. Occupancy rates of self storage facilities has risen from 76.2% last year to 82.3% this year. These occupancy rates have been increasingly steadily since 2011 when occupancy rates were at just 62.7%.
During the coronavirus pandemic the self storage industry continued to grow and thrive. Reports show that around 100 new storage units were opened within the first year of the pandemic. Self storage facilities were continuing to be created after this time, when the COVID restrictions allowed for the work to continue.
What Is The Current State Of Pricing For Self Storage Units In The UK?
At the last count there were around 2,000 self storage stores within the UK. However, even with the pandemic and extra self storage units being created, the average net rental rate for self storage units in the UK by 3.7% last year.
In addition to this, 78% of storage companies believe that there will an increase in storage fees in 2023. Many self storage companies are introducing new technology and systems to keep the prices low for the business and the customers. These improvements have helped them maintain a profitable and sustainable business.
How Profitable Are Self Storage Businesses?
A survey completed by the SSA UK surveyed users on their EBITDA. This is also known as Earnings Before Interest, Tax, Depreciation and Amortisation. They completed this research to measure the profitability and growth of a storage business over the last 12 months. Their research found that smaller self storage companies showed an increase of around 19.5%. Meanwhile, businesses overall showed an increase of just 2.4%.
It is worth noting that not every self storage company that took part in the SSA UK survey uses the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) measure. This means that the data was limited for the industry as a whole. However, it does show that it is a move in the right direction which is good to know if you were looking to invest in the self storage industry.
How Resilient Is The Self Storage Business?
Research shows that just 17% of existing self storage users has their usage or need for usage change during the coronavirus pandemic. More saw an increased need for self storage facilities that a dropped need for storage solutions.
Experts believe that the need for self-storage did change a little due to the pandemic and the cost-of-living crisis. However, as there is a return to what is being called the new normal, many people are moving house, downsizing or working from home. With this ‘new normal’, brings additional needs for self storage facilities.
There are also people that spent their time during the pandemic feeling cramped, decluttering or tidying up their homes. They have been sat surrounded with these things needing to go in storage, and now the changes from lockdown are coming in and restrictions eased, these people will go to new storage facilities for their rarely used belongings and much-loved possessions.
Regardless of the pandemic, the self storage sector has stayed open. It has stayed stable throughout the crisis too. Experts have no abnormal concerns for the self storage industry and believe that businesses in this industry will stay resilient.
Why Is Self Storage A Customer-Friendly Business?
According to research by the SSA over 9 in 10 customers (92%) are satisfied with their self storage companies. Research completed last year showed that less than 20% of respondents said they used an online review site before booking their self storage requirements. Google reviews and TrustPilot were the most frequent review sites that were referred to. Both of these have really boomed in the last year or so.
There are lots of perceptions that self storage units are only used as a one-off need. However, this is an old-fashioned perception and the needs for self storage units are changing. Research shows that 43.3% of customers using self storage today have used self storage facilities in the past.
The research goes on to show that 66% of self storage customers believe that their chosen self storage facility represents good value for money. However, it is worth being aware that 14% of those using self storage facilities represent poor value for money.
It’s a pretty well-known industry too. The research went on to show that around half of the general public believe that they have a good awareness of the self storage industry and how a self-storage unit could help them.
Do People Use Storage When Moving Home And Are People Still Moving House?
Experts believe and data shows us that the UK will experience a large percentage increase in the total population growth and urban population growth. However, it is expected that the population in rural areas will fall.
The data shows us that the UK urban population is expected to increase by around 3.7 million. Meanwhile, the population in rural areas within the UK is expected to decrease by 1.3 million. By 2023, it is predicted that the total population in the UK will increase by 2.4 million.
We have all seen the real pressures on urban spaces and higher population. This makes it easy to see just how much extra storage space is needed for people moving to these smaller homes with less internal storage.
In addition to this, people need storage when they are moving home. Research shows that around a third of all self storage space in the UK is hired by people that are in the process of moving home.
How Big Is The Average Home In The UK?
We have looked at the fact that homes are smaller, and this means that they have less internal storage space. However, how big is the average home in the UK? ONS data shows us that the average household in the UK is 2.4 persons per home. This remains one of the highest in Europe. However, in 2029 this is likely to decrease to 2.3 persons per household. That said, England, as a standalone country is projected to decrease to 2.3 persons per household by 2025.
It is important to remember that the average size of a domestic property in the UK is already smaller than the average domestic property sizes in other countries. With the population growth and urban migration, along with the under-supply of new homes, this will add more pressure onto homes and the space available in them for internal storage. In turn, this will lead to a higher use and need to self storage companies and their self storage units.
Why Should You Invest In Self Storage?
As we have mentioned earlier, in recent years self storage units have grown and grown in both popularity and awareness. As customers have become more aware of self storage units, investors, business owners and entrepreneurs have also become more aware of the self storage industry and how it could work for them. In recent years we have seen more business owners, investors and entrepreneurs begin to invest in and develop their own self storage business.
There are many different benefits to investing in self storage as a business. Below we have shared some of the more common reasons that investors choose to invest in self storage and the benefits that they gain from doing so.
Good Return On Investment
One of the great things about investing in a self-storage business is that it can turn a relatively low-yielding real estate asset (a warehouse for example) into a higher yielding real estate asset that is more stable. This can be achieved with some simple upgrades.
Low Maintenance Facility
Unlike a restaurant, hotel or retail outlet where there is heavy footfall, a full team of staff are needed and regular cleaning and upkeep is needed, a self-storage facility is relatively low maintenance. There will be low customer traffic and these customers will have minimal needs too. This means your office staff can cover the minimal housekeeping duties that arise.
Upgrade Underutilised Space
You will be able to make money on any spare space within your facility by turning it into a self-storage unit. Self storage units of all shapes and sizes will be needed by your customers, so this means that all areas of your facility can be turned into self storage units.
Minimal Staff Requirement
Fewer members of staff are required to operate the self storage facilities. This means that a self-storage facility can run easily with just 1-2 sales or admin staff and a security guard. With less employees, you will be able to save money on the number of staff that you need to pay.
Self storage units have more than one use. This is what makes it different to other businesses and industries. It’s also why investing in self storage facilities is a popular investment option. Individuals and business owners have a wide range of different reasons why they need a storage unit. This means that you will have a wide range of paying customers and multiple reasons for their storage needs.
How Is The Self Storage Industry Performing In The UK?
Now we have looked at some of the main benefits of investing in self storage businesses, you may be wondering how well the self storage industry is actually performing in the UK. Below we share some facts and statistics to help you see how well the self storage industry is performing in the UK. This will help you decide if investing in self storage is the right investment decision for you.
- The occupancy rate for customers renting self storage units rose from 73.1% in 2015 to 75.8% in 2016. Since then, there has been a steady growth. This is a clear indication that the demands for more self storage units in the UK is growing faster than the supply of self storage units.
- You may not think that self storage is that big in the UK and maybe bigger in Europe? However, this is not the case. In fact, the UK currently has 47% of the European storage market.
- The self storage industry is performing well when it comes to the annual turnover too. The annual turnover increased from £540 million in 2016 from £440 million in 2015. This growth has continued to be slow and steady over the last decade.
Is Self Storage The New Alternative Investment Sector?
Self storage has become the new alternative investment sector. It offers many favourable commissions along with an easily understood core proposition. An investment in self storage also offers a strong appeal to clients making the self storage sector a sector worth investigating when it comes to your next investment.
Below we have shared two of the reasons that the self storage sector could be the new alternative investment sector for entrepreneurs and investors in the UK.
- Self Storage Centre Location
The most effective self storage facilities are those located on office and commercial business parks. If they are within easy access of motorways links, then this will be a bonus. As will self storage units within a short driving distance from major towns or cities. If your self storage business has high opportunities for people to see them, this will help too. This could be near a main motorway or large main road for example. It will also be beneficial if your self storage facility is located in a highly populated area or in affluent areas. With all these points ‘ticked’ on your list, you can see why a self-storage unit could be the new and successful alternative investment sector for you.
- Terms Of Business
When it comes to the terms of business for a self-storage business, your tenants will typically pay one month’s rent as a deposit. In addition to this, they will pay one full month’s rent upfront too. From then, rent is then collected monthly. If a tenant was to default on the rent, then the self storage company is legally entitled to open the storage unit and sell the contents. The proceeds of this can then be used to cover any outstanding rent from the tenant. Users of self storage will often use the storage facilities as a one-off for a short period of time. However, once they have seen the benefits of self storage units, they will often find they can’t live without it and extend their hire of the unit or return in the future.
What Does The Storage Market Look Like In The UK?
The self storage marked was first establish in the UK nearly 40 years ago in the 1980s. It was first established in London and has since steadily grown across the UK. In the 5 years of 2010 the self storage sector recorded growth rates of between 8% and 15% per annum.
Since the 1980’s self storage rental has increased in both price and volume. We have seen a real growth of the multi-site operators that are commonly seen and known. However, there has also been the appearance of smaller self storage businesses joining the sector too.
At last count there were over 350 companies in the UK operating more than 750 self storage facilities. The self storage industry reportedly generates revenues of around £360 million. There are over 235,000 customers using self storage units. In addition to this, the self storage industry offers employment for around 2,700 people. Research shows that there are around 750 self storage facilities in the UK offering around 26 million rentable square feet. London and the South East has the largest concentration of these self storage facilities and self storage space for customers.
An annual report completed by the UK Self-Storage Industry Association, also known as SSIA, shoed that the UK self storage industry has remained resilient through the economic slowdown. In addition to this, the UK Self-Storage Industry Association annual report prepared by Drivers Jonas Deloitte shows that the self storage sector is now looking forward to a period of steady growth.
The UK Self-Storage Industry Association annual report also suggested that most operators of self storage businesses are looking to increase their rent for both new and existing customers. These rent increases are expected to be seen in the coming 12 months. Meanwhile, customers of self storage units are continuing to increase their length of stay and also the size of the space that they rent.
What Does The Future Of The Self Storage Industry Look Like?
Now you have a better understanding of where and how the self storage sector began and grew in the UK, you may be wondering what the future of the sector looks like. In short, the future for the self storage industry is looking good, but let’s find out why.
In the US and Australia, they have more mature self storage markets that the UK. Australia has 1.1 square feet of lettable space per person. In the US this is 7.4 square feet of lettable space per person. Here in the UK, where the self storage market is currently less mature than these countries, the square feet of lettable space per person is just 0.5 square feet.
As you can see, there is a large change between the size of rentable space per person in the UK and the size of rentable space per person in the US. This is down to how consumers perceive, view and understand the self storage sector.
Despite how self storage units in the UK are used, they are still seen, primarily, as a short-term storage solution to a temporary shortage of space. This temporary shortage of space is often seen as being bought about by events such as moving home, divorce or downsizing for example. It is often seen as solution for when a relative passes and the home needs to be sold or returned to the landlord. However, self storage facilities in the UK are used in far more ways than just that – but people in the UK just aren’t aware of this.
Meanwhile, in the US renting a self-storage space is more a normal part of life. Most people in the US use self storage solutions. In addition to this, it is often seen as an extension of the home. Once consumers in the UK begin to view self storage facilities in the same way as the Americans it is likely that we will see growth to the same or similar levels of market penetration in the UK.
Tell Me More About Investing In Self Storage
Until recent years, the self storage industry has been very much dominated by the large PLCs who are the familiar and recognisable multi-site operators. Smaller players in the self storage facility industry tend to be privately owned. They are often small-scale companies based locally too.
However, we have seen a real growth in new market entrants using innovative models to raise funds to invest in self storage facilities. There are companies out there that offer private retail operators the opportunity to purchase a storage unit in their development. The company then gives them to option to lease it back to them as the operating company for a fixed rental yield or to let it out privately themselves or with the help of a letting agent.
Through the investment into a storage unit, an investor can access one of the few growing commercial property sectors in the UK. This investment option has a strong appeal to investors and entrepreneurs that are familiar with the idea of owning a bricks and mortar property and having something to show for their investment. An investment in self storage is far more attractive to them that the through of investing money in unseen digital currencies or sending their hard-earned cash to a far-flung location where it can’t be seen.
What Are The Risks And Pitfalls Of Investing In Self Storage?
As all good investors know, there is no investment without any risk. And, as with all investment opportunities you have to look at all good points and benefits, along with the risks and pitfalls. Just like other investment opportunities, there are risks and pitfalls when it comes to investing in self storage. If you aware of these risks and pitfalls, then you know what to expect and if they can be avoided too.
When it comes to an investment in self storage, the investor it predominately relying on their storage unit being successful with tenants hiring the storage space the majority of the time. For this to be possible, the investor needs to be confident that their self storage business is in a good location and can be found and seen with ease. The investor also needs to be confident that the storage units will be properly promoted. In addition to this, the investor needs to be sure that there is a genuine need for self storage solutions in that local geographical area.
As an investor within the self storage industry, you need to be sure you know how you will exit the investment. If for example, the self storage market takes off like it has in the US then an investor could be sitting on a tidy sum. It is then important to think about what to do next with that investment as it will not be as simple as ‘pulling out’ or ‘selling up’ with no notice.
It is important to remember that the self storage market might not take off as it has in the US and Australia. This could mean that as an investor of the self storage market you could end up with a fairly expensive bricks and mortar space that is sitting empty. This is why, as with all investment opportunities, you think about this as an investment option and how it could work for you. It’s important to take a view on the potential size of the secondary market.
What Is Self Storage Investing?
Self storage investing is a form of commercial real estate investment. It lets you, as the investor, put your resources into self-storage facilities. This enables you to rent storage space to individuals or business owners.
You may find that individuals rent your self storage space for longer-term when they have too many items in their home or need somewhere to store family heirlooms for example. Individuals may also rent self storage units for the short-term when they are moving house or renovating their home and want their belongings to be safe. Meanwhile, business owners may use your self storage facilities to store extra supplies, bulk orders of stock, seasonal items or inventory for example.
By investing in self storage, you can help people with all these self storage requirements and many more.
What Are The Top Three Reasons To Invest In Self Storage?
There are many benefits to gain from investing in a self-storage facility. We have shared just three of the top reasons that investors choose to invest in the self storage industry.
Investing in self storage is a very lucrative investment. The start-up costs for a self-storage facility are relatively low in comparison to other commercial real estate investments. When you invest in self storage you don’t need to invest in management costs. Aesthetic updates for the self storage facility will be few and far between too. All of these factors, and more, will translate to low operating costs and a good profit margin. The result is a lucrative investment opportunity.
Due to the lower costs of setting up, running and managing a self-storage facility this will lower your risk too. The great thing about storage is that people will always need it. The self storage industry has survived through recessions and the pandemic when other businesses have been wiped out. As a self-storage customer leaves, another will be there soon to hire their space.
As you can see by the facts, stats and reasons that people and businesses use self storage units above, the demand for self storage is only growing. Small business owners, accountants, lawyers and solicitors will often need storage. However, short term renters. Digital nomads, students, globe trotters and many others will need self storage at some point too.
How Can I Invest In Self Storage?
One of the benefits about investing in self storage that we haven’t mentioned yet is that there are many ways to get started. We have listed some of the more common ways that you can invest in self storage below. Have a look through the options and think about which one could work best for you and your investment.
Buy A Self Storage Business
The most obvious way of investing in self storage is through purchasing a self-storage business. As the owner of the self storage facility, you can make money as the self storage facility turns a profit. You can get started by purchasing a ready-to-go storage facility, or by building and creating one yourself. It is possible to go down the independent route and start on your own, or you can buy into a larger franchise.
Invest In A REIT
You could start investing in self storage by investing in a Real Estate Investment Trust, also known as a REIT. It is possible to start investing in self storage this way with less than you would need to purchase an entire self storage facility. All you need to do, as an investor, is to choose a self-storage REIT (Real Estate Investment Trust) that has a good chance of profiting. Then, you can make money through dividends or capital gains.
Another popular way to invest in self storage is to purchase shares. The public stock exchange gas shares of self storage companies that are available for you to buy. It is then possible for you to make a profit on your investment by selling the shares as they increase in value. You could also earn a profit on your investment in self storage by getting dividends. These are something that the self storage company will pay shareholders when they profit.
Overview: Is Self Storage A Good Investment Opportunity?
Now you have seen the benefits and downfalls of investing in self storage, along with the history and future of the self storage industry, you can decide if self storage is a good investment opportunity for you.
If you would like to know more about investing in self storage, then call our team. As an established self-storage business with self storage facilities in Darlington and self storage units in Peterborough, we know a thing or two about self storage!
The self storage industry is growing steadily each year and many investors within the self storage sector are gaining excellent returns on their investments. More and more individuals and businesses are turning to self storage facilities to gain the extra space they need, while keep their belongings safe. It’s a growing market and if it hits the market levels of the US or even Australia, investors in self storage will see great returns on their investments.