The pandemic, recent cyclones, flooding, changes in business, lifestyle and living spaces have all unleashed a wave of demand for more self-storage space as well as demand for new sites in an expanding industry.

Severe weather events are quickly contributing to the demand for self-storage. More than 30 per cent of consumers surveyed for last year’s Self Storage Association of Australasia’s (SSAA) State of the Industry report said they had been impacted by a natural disaster or weather event in the past two years.

“The shorter term demand for self-storage is heightened in times of bad weather in areas where there is a shortage of houses and rentals,” says Makala French Castelli, SSAA’s chief executive.

The New Zealand self-storage industry is characterised by a wide range of investors, owners and operators with many “mum and dad” investors enjoying long and successful businesses.

Classed as industrial property, the New Zealand self-storage industry is flourishing, with more than 500 self-storage facilities and upwards of 130,000 storage units across the country, equating to 1.25 million square metres of space.

Recent high levels of demand have driven occupancy growth to about 90 per cent and the average storage fee rate to $318 a square metre a year.

Three key shifts are changing how people live and boosting demand for self-storage: smaller living spaces; working from home; and the move to the regions.

Business usage is also on the rise reflecting the growth in online retail and supply chain challenges. Average business occupancy rates have risen more than 5 per cent since 2020.

Business customers like the flexibility that self-storage offers for storing inventory and supporting e-commerce growth, says Castelli. She adds the SSAA represents about 1,500 self-storage facilities across both countries from national multi-location companies to the more traditional owner-manager single location.

EXCEPTIONAL YEAR

The sector is not short on facilities changing hands; 2021 was an exceptional year, with more than $2 billion transacted across the Australasian market. Transaction volumes declined across the first three quarters of 2022, with stock availability and rising interest rates having an impact.

New entrants to the sector are not deterred and it is leading to demand for sites with self-storage potential. Castelli says while opportunities remain, there are about 90 facilities already in the pipeline across Australasia.

She says research is key to avoid saturating stabilised areas and reaching others with untapped potential for demand. The key challenges in most markets are land costs, location and planning controls.

Storage.com says potential owners need to answer one critical question: If I build it or buy it, will they come?

In other words if you invest money in a self-storage facility, will you generate enough revenue to cover debt service and operating expenses, and still make a profit? The company says doing a feasibility study will help a potential owner pinpoint the demographics of the customer base within a one to 20 kilometre radius of the facility, the typical size of a market for a self-storage facility.

A new entrant will want to nail down the median income in the market area along with the median age. In addition, they will want to review the following aspects of a proposed market area:

• Projected population growth (more people means more prospective tenants).

• Daily vehicle traffic (the majority of self-storage facilities depend heavily on drive-by traffic to attract customers).

• Competitive landscape. Which self-storage facilities are already operating in the area? What is their occupancy rate? Are there any facilities that are under construction or planned within the trade area?

• Other components should include an overview of the self-storage industry; long-range projections for rental rates, income, expenses and property value, and details about the storage project’s zoning.

After completing the feasibility study buying a site is the next critical stage. Before closing on a piece of land, a potential buyer should figure out the scope of a self-storage project, including whether a single-storey or multi-storey facility is suitable, how many self-storage units will the facility maintain and what is the total square metres needed, says Storage.com.

A bespoke designed building ensures the best use of space and the right unit mix.

‘Classed as industrial property, the NZ self-storage industry is flourishing’

PITFALLS TO AVOID

The facility size and then construction costs need to be nailed down because they vary widely.

A-Line Construction, a specialist in the self-storage construction industry, says there is a critical need to make the facility attractive and durable for lenders, investors and potential buyers.

“To get the best return on investment for self-storage facilities it is important to utilise maximum space with the right mix of units for efficiency and flexibility. Having functional, durable buildings that attract quality customers and retain staff is an excellent way to ensure profitability.”

Storage.com says there is one key question when going down the development path: how much money will a new entrant need?

“There’s no simple answer to that question, as the cost can vary based on several factors, such as location and the number of self-storage units.”

A Line says it is essential to get the basics right:

LOCATION

Mistake: buying a cheap site:
The location of a new storage building is a key factor to the project’s success. Buying a quality site on a main thoroughfare allows for more visibility, ease of access and interest from customers.

POINT OF DIFFERENCE

Mistake: not considering all options to set facility apart from competitors:
Designing a new facility to have a variety of options such as climate-controlled areas, mix of indoor/outdoor units, mechanical ventilation to reduce mould and specialist storage areas will ensure a greater chance of success.

BESPOKE DESIGN

Mistake: ordering an “on sale for limited time” building package:
Having a bespoke designed building ensures the best use of space along with the right unit mix. There are multiple components to consider in the design/engineering stage, which often don’t lend themselves to a cheap standard building package, such as ground conditions, fire codes, local authority conditions, services capacity, layout, car parking and customers’ needs. Bespoke designs reduce risks and provide better long-term results.

DETAIL, DETAIL

Mistake: not attending to customers’ needs:
It’s critical to ensure any facility is providing easy access, comfort, security, good hygiene, wi-fi, music, packaging supplies, courtesy trailer/ small truck, location and layout. Having user-friendly facilities enables an owner/investor to receive premium rates and retain customers.