Self-Storage: Ideal for Long-Term Financial Investment or a Situational Convenience?

Self-Storage: Ideal for Long-Term Financial Investment or a Situational Convenience?

Investors the world over would agree that a sound financial investment is one that offers a consistent, long-term ROI with a reduced risk factor. Simple. Straightforward.

Why? Well, it’s really quite obvious to anyone in the know.

Basically, a strategy that promotes a stable, long-term yield, one grounded in a blossoming sector that meets evolving consumer needs, will always be attractive. An investment in a volatile sector, one with an uncertain future, may be an attractive short-term proposition, but long-term? Not so much.

Take the digital sector, for instance. It seems like a logical investment, right? After all, digital technology has taken over the world. And it’s only accelerating, influencing every area of our lives. Is this a sound sector to invest in?

Well, yes. No. Maybe. It depends on what you choose to invest in.

The problem with investing in the digital sector is that it’s volatile. Very few, if anyone, know what the next great innovation will be. AI or machine learning. The metaverse. Extended, augmented, or virtual reality. The past few years have seen them all lauded as the future.

The problem is that innovation is constant. Always accelerating. A new business, platform, or idea may sound great in July. Come September, the focus could have shifted to something entirely different.

If you’re looking for an industry with strong foundations to grow your investment portfolio, a safer bet would be a stable sector. One with the potential for a secure, attractive long-term yield. One that meets evolving consumer needs.

A sector like self-storage.

Is self-storage a good investment?

Let’s get down to brass tacks. In 2022 alone, UK households and businesses filled more than 2 million square feet (or 185,000 square metres) of self-storage. That’s one heck of a large footprint. * Around two-thirds of customers pay for their unit(s) for two years. 20% of customers hold onto their unit for five years. *

Self-storage was one of the only sectors to prosper during the pandemic. This comes as little surprise when you consider how COVID fundamentally changed the way many of us live. Homework or remote working became the norm. Downsizing for reasons such as rising household bills or empty nests is still commonplace. Little has changed. Especially in the wake of the mortgage interest rate hike. Storage space outside our home is in demand.

UK homes are, on average, smaller than homes elsewhere in the world. Decluttering and streamlining the amount of household belongings we own is good for our mental health. The last decade has seen a societal shift towards minimalism. All of these reasons and more highlight the rise and importance of the self-storage sector and why it’s a safe bet for investors.

The demand for self-storage in the UK in figures

According to a 2023 report by Cushman & Wakefield, self-storage occupancy rates have remained stable at 83%. More than 2 million square feet of additional space have been created since 2022. 17% of customers have said their need for self-storage has increased during the cost-of-living crisis. *

And these are just three statistics that highlight just how buoyant the sector is and why investors view it as a solid investment. Having emerged from the pandemic, self-storage has continued to prosper. This is despite the UK’s uncertain economic outlook.

Now, you could argue that the rise in self-storage was a result of situational convenience, but it has been three years since the pandemic, and the demand for self-storage hasn’t dwindled.

How resilient is the self-storage sector?

Now, this is a question that we’ve covered in previous blogs and even touched upon in this one, but in the interest of clarity, let’s revisit the resilience of the self-storage sector.

Operators in the self-storage sector saw revenues increase 6.5% year-on-year. Now, growth benchmarks vary due to several circumstances, but we can all agree that 6.5% year-on-year growth is something not to turn your nose up at! *

The pandemic and the cost-of-living crisis may have been catalysts for growth, but sector-wide performance remains strong.

Perhaps the biggest resilience indicator is that despite the UK-wide inflation rate sitting at 7.9% (as stated by the ONS) since June 2023, the self-storage sector is holding firm against the barrage of economic winds. *

People don’t have or want as much stuff in their homes, whether they’ve downsized or not. Many commercial premises have adopted a hybrid working model. They’ve established smaller premises and leveraged self-storage facilities to store excess stock. This, too, isn’t expected to change in the foreseeable future. In fact, according to Statistica, industrial and commercial real estate rental rates are expected to grow by 3.3% and 1.1%, respectively, between now and 2027.

This may not seem like a lot, but when you consider the trying economic times we’re facing and the benefits of remote or hybrid working models for some businesses, it’s not hard to see why self-storage will be needed.

Why should people invest in the self-storage sector?

As you can no doubt see, the UK self-storage sector has grown and grown over recent years. The more people have leveraged the service, the more business owners and entrepreneurs have seen investment opportunities rise.

This is most aptly demonstrated by the sheer volume of self-storage businesses in the UK. But the popularity of self-storage is just one reason why investors have flocked to the sector. There are so many more reasons why this sector is booming.

Below are just a handful of reasons why you should consider investing in self-storage.

Good return on investment

According to online statistics, the typical profit margin for self-storage businesses is 41%. * Now, that may sound very favourable, but that’s not the whole picture. Profit margins depend on differing factors, including facility size, location, pricing matrix, and the range of amenities offered by the business.

However, this profit margin is attractive. Especially when you consider that investors in the UK rental property market who own buy-to-let properties can expect a 7.3% ROI, with some estimations being as low as 4.5%. *

Low-maintenance facility

Unlike restaurants, retail outlets, or hotels—premises with significant footfall and dedicated teams of staff—self-storage facilities have relatively insignificant footfall. In fact, many have adopted automation as a way to streamline costs and optimise the customer experience.

Customers that do visit in person also have obvious and straightforward needs. This means that sites require minimal manpower to operate efficiently.

Make money from underutilised space.

In a challenging economy, most SMEs and blue-chip businesses should, where possible, be monetizing any assets they have. If you have additional space that’s not already leased, a great way to make money from this underutilised space is to lease it out as self-storage.

Self-storage is used by a range of people. Lease small or large amounts of square footage, and you’ll add an extra revenue stream to your earnings.

Minimal staff requirement

As we’ve already alluded to, self-storage facilities require minimal onsite staff, thanks to workflows, processes, and automation. This means that, depending on the size of the facility and the ethos of the company, a minimum amount of operational, administrative, and security staff is all that businesses need.

Less employees means less overhead, which opens the door to more potential profit, a stronger business, and a more robust investment opportunity.

Multiple uses

There isn’t much that you can’t store in a self-storage facility. From excess retail stock to your automotive pride and joy, the good thing about self-storage facilities is that they offer flexible storage opportunities.

The more customers you can appeal to, the more potential you have to expand commercial service offerings. This is attractive to investors. Why? A service that appeals to everyone, or even almost everyone, has much more potential than an experience that solely appeals to a few.

Is self-storage the new investment sector?

It’s hard to argue against self-storage as a strong alternative investment sector. Not only does it have a strong core commercial proposition, but the sector is also resilient to economic fluctuations, even thriving in tumultuous times.

And let’s not forget that in the UK, self-storage is a billion-pound industry.

If you’re considering which sector is most attractive to your investment portfolio, why not investigate self-storage a little more?

Resources:

https://www.theguardian.com/business/2023/may/17/housing-crisis-drives-1bn-a-year-boom-in-uk-self-storage#:~:text=In%202022%2C%20UK%20households%20and,Wakefield%20and%20the%20Self%20Storage

https://www.cushmanwakefield.com/en/united-kingdom/insights/uk-self-storage-annual-report

https://www.ons.gov.uk/economy/inflationandpriceindices

https://storeganise.com/blog/how-to-invest-in-self-storage#:~:text=Typically%2C%20the%20profit%20margin%20for,amenities%20offered%20by%20the%20business

https://www.sdlauctions.co.uk/latest-news/what-is-a-good-return-on-investment-for-property/