Self-storage demand has skyrocketed since the pandemic’s inception, which unleashed a flood of both individuals and companies in need of more space amid the growth of hybrid work and e-Commerce.
While that may have surprised some, Louise Burke, Director of Alternatives Research at JLL (pictured above) said the momentum really began to take up in 2022.
Ms Burke puts it down to two things, the uptick in occupancy and general performance metrics, but also, more anecdotally, real estate giant Blackstone entering the market in 2021.
Prior to 2021, transaction activity was dominated by the sector’s two major A-REITs, National Storage and Abacus. JLL estimates that these two groups have accounted for around 74 per cent of all asset acquisitions since 2015.
Both A-REITs have been extremely effective in obtaining assets off the market from private owners, with just a few real estate organisations successfully joining or developing inside the sector throughout this time period.
With the acquisition of owner-operator Fort Knox in 2021, Blackstone joined the Australian market through their firm ‘DBI storage,’ noting the expanding e-Commerce trend.
Abacus recently announced its intention to create a new ASX listed self-storage REIT to be called Abacus Self Storage REIT.
The new listed entity would own a portfolio of 127 assets with a gross asset value of more than $3 billion after a $1.2 billion splurge over the last five years.
Abacus Managing Director Steven Sewell said the self-storage market “has attractive market fundamentals supported by macroeconomic tailwinds including an imbalance in supply and demand”.
Ms Burke said the self-storage market was still fragmented in terms of ownership, with mum and dad investors holding a large footing in the asset class.
This makes originating opportunities difficult, she said, and coupling this with the fact that operating performance has been strong, not many of these investors are keen to let go of their assets for nothing less than a premium.
In the most recent A-REIT reporting season National Storage REIT recorded an average yield of 5.86 per cent, while Abacus recorded an average yield of five per cent.
Abacus reported a revenue per available square metre growth (RevPAM) of 8.8 per cent and an occupancy of 91.7 per cent, while National Storage reported RevPAM growth of 4.7 per cent and an occupancy of 87.2 per cent.
While occupancy is generally high, it is hard to place where that demand is coming from due to a lack of data, Ms Burke said.
She said anecdotal evidence points to COVID playing a factor, with people needing to make room for a home office, a rise in apartment living and somewhere to store items while people were in the process of moving or downsizing.
But another source of demand is e-Commerce.
“What we have heard consistently over the past few years has been the micro fulfillment, e-Commerce, home business stories, really small businesses, using this space,” she said.
“It does sound like this probably is one of the most significant drivers, but no one’s really been able to get the data to quantify it,” she said.