Self-storage leads in commercial property sector

Self-storage leads in commercial property sector
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WITH businesses and households downscaling, lifestyle changes and emigration is on the cards for many South Africans, causing something of a boom in the self-storage industry.

Globally, the sector is valued at around USD 40.73 billion and is expected to increase to USD 53.92 billion by 2026, according to Mordor Intelligence.

John Jack, CEO of Galetti Corporate Real Estate says that the self-storage revolution is a key player in the demand for industrial property, which has seen increased demand over the past year.  “Interestingly, storage tenant payment performance now outperforms all three major property sectors. An article by Forbes cited the self-storage sector as the most recession-resistant asset class as it remains resilient even in the toughest of times”,

Self-storage demand trending overseas

Self-storage first began in the US in 1960 and has since skyrocketed.

Jack says that the recent demand has also been noted in Australia, where the industry is enjoying high occupancy rates and a favourable outlook. “In fact, it’s been said that companies are fighting for new sites and additional space to cope with the demand”,

Adding to this, US-based Extra Space storage recently reported occupancy levels of 95.7% (compared to 90.9%) at the same time last year.

On the local front

“In the past, self-storage units were hidden in dingy areas with little access. Today, they’re all fighting for prominent space and can be found in all major suburbs”, adds Jack.

Locally, Stor-Age makes use of 71 properties – equating to roughly 448 600mof land space. While the rest of the commercial property sector – such as commercial and retail properties – struggle to recoup tenant repayments, the self-storage sector is fighting for prime locations and is expanding to meet demand. “It’s become a lifeline for the embattled commercial property sector and is responsible for filling many vacancies and covering many rental bills. The tenants themselves require little ‘frills and fuss’ in terms of amenities and are purely on the hunt for space based on location and price.”

Key players such as Stor-Age and Xtra Space are two commonly known names in the industry. However, Jack notes that there are many rising players coming to the fore as this sector continues to increase in popularity.

He adds: “In the past, this sector was largely overlooked but today, we are all taking note.  There’s also more talk of investors taking a bullish approach by investing in self-storage REITs (Real Estate Investment Trusts)”.

“We at Galetti have just partnered with SpareSpace to bring short-term storage to the industrial market.”

What’s driving the industry demand?

Jack believes that while there is a myriad of reasons for the success of this industry and the rise of new players, but some of the main drivers include:

  • Low overheads and development costs: “While setting yourself apart with amenities is a strategy that some self-storage companies are keen to take on, the industry is driven by price and location. Setting up and maintaining a building of this nature is relatively straight forward and easy to do. It requires few frills and fuss. Security, location, size and the property price are the main purchase drivers”, notes Jack.
  • Increased demand and steady income streams: “Many people are looking to new income streams and are going where there is demand. Investors are also looking to buy into the self-storage phenomenon with properties going for a steal. The biggest factor for investors is tenant repayments and thanks to the robust and sturdy nature of this sector, it’s attracting a lot of attention.”
  • Recession resistant: “A sweeping statement but none the less. As the rest of the commercial property sector works to get back to its former self, the self-storage sector remains resilient and consistent”, he concludes.
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