Self Storage Considered a Good Investment in Europe

In Europe as in the United States, real estate analysts are recommending self storage as an investment worth considering, compared to other areas of the real estate market (such as residential and retail properties), which are foundering.

“The self storage industry is experiencing its first real test since its beginnings in the early 1970s,” wrote analyst John Nikolich in Inside Self-Storage last week. “At the time, the economy was in terrible shape, but self-storage was in its infancy and demand  exceeded available supply; therefore, the deep recession didn’t have much impact on the sector.”

Today, the self storage market in Europe and Great Britain is in a situation very similar to the circumstances faced by the industry in the United States in the 1970s -- although there is a global recession, demand for self storage in Europe still exceeds supply. Although the industry is now well developed in the United States, it is still in its infancy -- or at least its childhood -- in Europe.

The self storage industry in the United States provides an average of 7.4 square feet of storage to every American, and the Australian self storage industry provides an average of 1.1 square feet of storage for every Australian. But the United Kingdom, which has more self storage units than any European country, offers only an average of 0.52 square feet of storage per Briton. Since homes in Britain and Europe often have small rooms, it seems likely that demand for self storage will continue to increase as more self storage facilities open and as people become more aware of self storage as an option in their local areas.

To do well and make a profit, self storage facilities do not have to run at full capacity. Occupancy rates can drop to the point at which a facility is only about two-thirds full, and the business can still make a profit. The break even point for most U.S. self storage facilities, Nikolich claims, is about 65 percent occupancy. In an article for Bloomberg last week, financial reporter Simon Packard argued that the break even occupancy rate for European self storage facilities is actually closer to 40 percent. Any additional occupancy represents pure profit for the business.

Although European self storage businesses, like other businesses, have been through some rough times over the last two years, London investment analyst Paul Pulze told Bloomberg last week that British and European self storage companies, like Safestore, Big Yellow Group, and Lok’nStore are past the worst of it now.

“If the economy starts to improve and the companies can drive demand for the product, there’s significant upside relative to other real estate,” Pulze told Bloomberg.

Sources used:

Anderson, J. Craig. “50-year-old real-estate investment trusts capture attention in shifting market.” The Arizona Republic. Sept. 26, 2010.

Kilpatrick, Kim. “Self storage facilities selling well in challenging real estate market.” Self Storage Industry News. Sept. 29, 2010.

Nikolich, John R. “A closer look at the capital markets: self-storage remains an attractive investment during the recession.” Inside Self-Storage. Sept. 12, 2010.

Packard, Simon. “Self-storage may see European property’s biggest profit growth.” Bloomberg. Sept. 29, 2010.