The Effect of the Cost-of-Living Crisis and Slowdown in Economic Growth on the Self-Storage Sector

Our enduring appetite for consumerism, a sentimental reluctance to say goodbye to previously treasured belongings, and the need for more and more household square footage despite sky-high rental costs and property prices have, arguably, fuelled the growth of the self-storage sector.

According to online data, in 2018, there were an estimated 1,505 self-storage facilities. By 2023, that number would have risen to 2,231. That’s a growth of 32% in just five years.

And this growth isn’t expected to plateau in the years to come. In fact, many leading industry experts are predicting that the growing demand for both commercial and personal storage and the flexibility of short- and long-term storage offered by operators will only see the sector continue to grow in the coming years.

Now, there are several market variables to any market forecast. It’s simply not as simple as need fuelling growth. So too do circumstances, especially economic circumstances. In a buoyant economy, consumerism thrives. Why? People have more money to splash out on the latest iPhone 15 or an Apple Vision Pro, a new BMW, or whatever they fancy and is in their budget. When the economy contracts, consumers tend to gravitate towards products and services they need, not what they want.

It just so happens that self-storage fills a need.

But you don’t have to take our word for it. Let’s examine the effect that the cost-of-living crisis and slowdown in economic growth have had on the self-storage sector, based on the 2023 Cushman & Wakefield annual report.

An Overview of the Impact that Economic Uncertainty Has Had on the Self-Storage Sector

Over the last 12 months, the uncertain economic outlook has only exacerbated the pressure businesses felt during and in the wake of COVID. The September 2022 Mini Budget, which devalued the sterling to a low point of $1.07 and increased the cost of borrowing, only destabilised an already shaky economy.

Inflationary pressures have driven up the cost of living. Already reeling from global shutdowns and the disruption caused by the war in Ukraine, interest rate hikes were the cherry on the cake for many people and businesses, with mortgage rates putting homeowners under unwelcome pressure. As of the start of autumn 2023, most lenders interest rates were an average of 5.25%. However, as anyone with a mortgage knows, the slightest increase can have a significant impact on your wallet.

Despite forecasts that the base rate (what the Bank of England charges lenders and other banks when they borrow money) may well peak at 5.75% at the start of 2024, lenders are slashing some of their two- and five-year fixed rates by 0.5-0.75 points.

The bottom line is that expensive mortgages and high house prices have compromised buyer demand and appetite. Less people are buying and selling their homes. Even people who might need the extra square footage. And self-storage has stepped in to provide homeowners with a storage solution that’s both affordable and meets their needs.

Inflation

In August 2023, The Bank of England published an article explaining that UK inflation is high because our economy took a series of “big shocks.” These were the COVID pandemic, the Ukraine war, and the volume of people available to work.

People in lockdown bought more goods and fewer services. This resulted in retailers not having enough goods, particularly imported goods, and therefore higher prices. The second economic jolt was Russia’s invasion of Ukraine, which, along with poor global harvests, pushed up the price of food to 17% higher than 2022. There was also a huge increase in the price of gas, to £5.26 per kilowatt from £0.99 per kilowatt in 2022. An increase of 23%.

According to Ofgem, from October 1^st, 2023, an energy price cap of £1,923 will be in place for a typical household that uses gas and electricity. This is based on the typical household energy usage in England, Scotland, and Wales and ensures that people on default energy tariffs are charged a fair amount for their energy consumption.

The current inflation rate in the UK is 6.8%. The UK government has targeted an inflation rate of 2% by the start of 2025; however, it remains to be seen if this will be achieved. What economists do know is that inflation is falling in line with government expectations.

All this means that people have greater financial expenses and less overall disposal income than last year. Saving is becoming increasingly difficult for many. People are rethinking major financial expenditures, such as moving home or building an extension.

Yet, some families still need more space in their home, which self-storage can provide. And with the relatively low cost of self-storage and flexible payment options, it’s little surprise that homeowners have used the pandemic as a chance to get their home organised and continued to use self-storage in the wake of economic uncertainty.

Of course, self-storage rental rates continued to increase in 2022, rising 4% to £27.19. However, considering UK inflation grew from 5% in January 2022 to 9.6% in October, self-storage rental rate inflation was notably less than national inflation.

The Housing Market

Prior to the pandemic, Russia’s invasion of Ukraine, and the subsequent economic fallout, the UK housing market was buoyant. However, rising interest rates, a weaker economy, and high inflation have hit the brakes on economic growth. This has impacted buyers’ confidence.

According to a September report by Nationwide, house prices were down 0.8% when compared to August 2022, resulting in an annual fall of 5.3%. Higher interest rates, which remain sensitive to economic data, are causing buyers to think twice about buying a new home.

However, this is nothing new. In February 2023, house prices experienced their first annual decline since June 2020, with Nationwide reporting a 1.1% annual fall.

Such economic uncertainty has caused many homeowners to stay put and not sell their homes. In a less competitive market, homeowners don’t want to sell their homes for less than they believe they’re worth.

Yet many homeowners still need additional space. Building an extension may seem like a solution, but that’s expensive and disruptive. Putting excess belongings into self-storage can solve the problem of space, especially for growing families, allowing them to be more comfortable when at home and “ride out the housing market storm.”

For some homeowners, moving up the property ladder may seem like a stretch too far. Property prices may have dropped 0.8%, but for many, right now isn’t the best time to buy a new home.

Then there’s the property rental market. The lack of affordability has left many people renting their homes. For many, this leads to a need for self-storage. People may have even decided to downsize their rental properties or sell their homes to cover accrued debts, both of which create a self-storage need.

The Cost-of-Living Crisis

The increased cost of debt and inflation have impacted many sectors, including self-storage. 22% of operators believe these factors are impacting future self-storage developments. Any growth hindrance is likely to impact consumer discretionary spending. More expensive mortgages will slow the housing market, negatively impacting liquidity. This could cause market growth to stumble.

Also, increased budgetary pressures may result in homeowners deciding to delay expenses like home renovations, loft conversions, and extensions. This can have both a positive and negative effect on the self-storage sector, with homeowners needing self-storage to securely store belongings that they cannot find space for in the home.

In the year to February 2023, electricity prices increased by 66.7%. Gas prices had increased by 129.4%. This is creating a financial squeeze for many, with 49% of UK adults finding it difficult to afford the cost of heating their home.

The drastic increase in the cost of living has caused people to hit pause on any long-term financial ambitions, such as paying off mortgages or even taking that expensive summer holiday.

According to the ONS, the average UK price of food rose 19.1% in the 12 months to March 2023. Actual statistics online, however, to March and beyond do vary; however, they generally hover between 15-20%.

Of course, any rise in the cost of living affects people’s decision-making. Some people may view expenses like self-storage as essential. Other people may view such a cost as avoidable. Greater insight is outlined below.

The Self-storage Sector

According to Cushman & Wakefield’s UK Self-storage Industry Report 2023, 60% of customers believe self-storage to be good value for money. 40% are split between not having a strong opinion and self-storage not being value for money.

Now, reading between the lines, it can be argued that as many as 80% of customers could believe self-storage to be good value for money (by halving the 40% of customers who are split or don’t believe self-storage to be good value for money and adding the 20% to 60%).

What are the rental rates? Well, according to Cushman & Wakefield, 11.2% of operators have not changed their rental rates in the wake of the cost-of-living crisis and economic slowdown. 38.1% of operators have increased their rates less than the national inflation rate, and 50.4% have increased their rental rates more than the national inflation rate. 0.3% have made any change.

It’ll be interesting to see rental rate increase statistics as 2023 and 2024 unfold into 2025 as the UK government attempts to bring the inflation rate down to 2%.

The Takeaway

What’s clear is that the cost-of-living crisis and slowdown in economic growth have had a significant effect on all UK sectors. However, unlike utilities and food costs, which have gone through the roof, the cost of self-storage has remained reasonably stable.

Of course, self-storage demand has evolved, with people in different circumstances requiring the service for different reasons; however, despite these tumultuous times, the sector has stood firm against an economic assault and continues to deliver a much-needed solution for individuals and businesses as they adjust to a change in economic circumstances.

Now, we get it. This blog article is rich in statistics and data. However, the one clear takeaway is this: self-storage can be a godsend for people in a variety of circumstances.

Sources:

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

https://www.insideselfstorage.com/united-kingdom/uk-self-storage-association-releases-2018-industry-report

https://www.ssauk.com/industry-info/size-of-the-industry.html

https://www.bankofengland.co.uk/explainers/will-inflation-in-the-uk-keep-rising

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1166257/quarterly-energy-prices-june-2023.pdf

https://www.ofgem.gov.uk/information-consumers/energy-advice-households/energy-price-cap#:~:text=From%201%20October%202023%20the,and%20pay%20by%20Direct%20Debit.

https://www.savills.com/research_articles/255800/351513-0

https://www.ons.gov.uk/economy/inflationandpriceindices/articles/foodandenergypriceinflationuk/2023