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Opportunity market for storage rooms: Self-storage properties are becoming the focus of investors

Self-storage real estate is also attracting increasing interest from investors in Germany. The still immature market is amid professionalization.

February 27, 2020

Self storage, temporary storage space, is attracting more and more interest from real estate investors. In the traditional real estate classes, opportunities are getting tighter, yields are falling, and at the same time there is more capital in circulation than ever before. And that is increasingly being applied to self-storage properties.

However, Germany is not yet a very mature market, which of course also offers opportunities. According to a study by JLL and FEDESSA, there were around 4,300 self-storage systems in the European countries evaluated in 2019, which add up to a total of almost 10 million square meters. 80 percent of these properties are spread across six countries, albeit extremely unevenly. Well over a third is in Great Britain, 12 percent each in France and Spain, followed by the Netherlands. Germany, the sixth largest location, has only 6 percent. There were 630,000 square meters of space in this country in the previous year, around 0.008 square meters per inhabitant. In the United Kingdom, however, there was 0.063 square meters per head.

Investors want to get into the self storage market

However, the trend curve in Germany is clearly pointing upwards. This is suggested, for example, by the data from the Association of German Self Storage Companies. The number of systems that follow the relevant industry standard DIN EN 15696 has more than doubled in the past ten years. And investor interest is also growing, as a JLL survey shows. While only 7 percent of investors were in the self storage market at the time of the survey, 33 percent were planning to expand their activities - significantly more growth efforts than even in the more established alternative student housing segment.

“The majority of investors expect self-storage to generate attractive supply-demand dynamics. Many also see the possibility of largely cycle-neutral diversification here”, explains Ralf Kemper, JLL Head of Valuation & Transaction Advisory Germany, the motivation of the investors. The megatrend of urbanization and the resulting shortage of living space in the centers play into their hands. There is increasing pressure among German city dwellers to use living space efficiently and to outsource inventory that is not required. They are thus following a development that can already be observed more clearly in London or Paris.

In addition, there is a working culture of flexibility. Employed people change locations far more frequently than decades ago. Conventional apartments that are readily available are often scarce in the new place of residence. There is a shift towards sublease, temporary living, co-living or other shared apartments. There is then no space for the old furniture, it has to be temporarily stored.

Self-storage offers commercial users alternative storage space

But it is not only apartment users who have to find strategies to counter the shortage of space. Commercial players are also dependent on securing alternatives in the tense real estate markets. Be it storage rooms for files or intermediate storage for goods traffic, the demand is growing, especially for smaller companies and startups. Across Europe, the share of commercial users increased by 5 percentage points between 2018 and 2019. In Germany, however, around 80 percent of customers are private individuals.

Professionalization can still unlock a lot of potential

What has so far made it difficult for investors to enter the self-storage segment is the granular nature of the German market. The ten largest providers operate just a little more than 20 percent of the systems or around half of the total area. As in many European countries, the market is characterized by a few large companies and numerous small, local operators. The midfield is comparatively weak. “A rather immature market like the self storage segment poses special challenges, especially for larger institutional investors. After all, they depend on achieving significant economies of scale through high investment volumes. However, the growing interest in these assets should also ensure further consolidation and professionalization of the market,” said Frank Rambow, Lead Director Valuation & Transaction Advisory at JLL.

The potential for self-storage real estate is by no means exhausted, as is the case for other alternative investments. A whole wave of government bonds with good interest rates is currently running out. So there is even more money entering the capital market that is looking for investment opportunities. The yield compression and the shortage of products in the established property classes will continue to fuel interest in the self storage segment.

Ralf Kemper,Head of Value & Risk Advisory Germany
Ralf Kemper
Head of Value & Risk Advisory Germany
Frank Rambow,Lead Director Value & Risk Advisory Commercial
Frank Rambow
Lead Director Value & Risk Advisory Commercial