Opportunities in store for investors
THERE are almost 1,200 storage facilities in the UK, according to research by www.storage.co.uk. That means there are about as many storage units as McDonald’s burger outlets.
Self-storage is certainly a rapidly growing market and over 28 million square feet of selfstorage space has been built in the UK so far. Over the past five years growth in capacity has been between 8 per cent and 15 per cent, so investors may well wonder how they can gain exposure to this market.
Although some of the larger operators are privately owned, such as Access Storage and Shurgard, there are three UK quoted companies which specialise in supplying small storage units to the public. These are Safestore, Big Yellow and Lok’nStore. Of these, Safestore and Big Yellow are the largest – Safestore has 117 outlets whileBig Yellow has 65 with several more in the pipeline. Lok’nStore is much smaller with only 23 stores of which 10 are leasehold.
Like all property-based businesses, storage facilities are capital-intensive but they do have some attractive economics – good returns on invested capital, bad debts are very low, the income is predictable and people generally stay longer than they initially plan. In addition, the storage companies often have good partnerships with removal companies and have successfully become sellers of insurance and of packaging materials. The larger chains have good economies in buying packaging, have built national brands and can get economies of scale in advertising.
In terms of what investors get for their money, for every £100 invested at market prices in May 2010 here is the approximate net asset value you get: Safestore £100, Big Yellow £113 and Lok’nStore £142.
If demand for storage continues to increase the companies should become very profitable – as they fill their vacant spaces the income will go straight through to their bottom lines. On the other hand, if demand falters there could be some consolidation.
Certainly the sector is an interesting one for investors and will become a permanent feature of the property investment market.
Angus Hanton is founder of www.storage.co.uk, an independent storage information site.