The state of the European self storage industry in 2021
Self storage is growing across Europe, and becoming an attractive investment with untapped potential.
2020 and 2021 were years of upheaval for many industries. Who would have thought that the bastion that was tourism could collapse? Or millions would transition to work-from-home in December of 2019? Real estate and Self Storage are no exceptions to this phenomenon. The Federation of European Self Storage Associations (FEDESSA) published their 2021 annual survey.
Here’s a breakdown of the results.
Self Storage Industry in Europe
Across Europe, there are an estimated close to 5200 facilities offering self storage. They occupy approximately 11m square meters of space across the continent. UK, France, Spain, Netherlands, Germany, and Norway are the six most mature countries. Together they have 78% of self storage facilities. However, as self storage is growing in the less established markets, the market share is slowly but steadily dropping.
Overall, there is a distinct consolidation trend. The gap between small operators with 3 facilities or less and large ones with 10 facilities or more is widening. Mid-tier operators are absent. Most operators focus on single-country strategies. But, the top 10 brands are expanding and consolidating at a much faster rate and pursuing a cross-Europe strategy.
On average, across Europe, self storage facilities occupy 0.022 sq m floor space per capita and have 10 facilities per million population. However, the Scandinavian countries, Netherlands and UK have a significant lead and are skewing the distribution. This means that even mature Self Storage markets such as Germany, France, or Spain have a lot of growth potential to reach the European average.
Occupancy rates across Europe on average are at 81.5%, increasing from 79.8% in 2020. These numbers are uniform across Europe except for Russia, Poland, and the Czech Republic. They see much lower average occupancy rates, between 60 and 70%. Several factors influence occupancy rates, and the main one being facility age. It takes 3 to 5 years for a self storage facility to reach maturity, and occupancy is around 68%. Again there is potential for expansion and growth, especially for newer locations.
Customer segmentation is also mostly uniform across Europe. The ratio of domestic versus business users of self storage averages at 8:2 for all major markets. During the pandemic, business occupancy dropped from 32% to 22% on average. Poland, the Czech Republic, Ireland, and Italy are the only notable differences, where business users continue to make up a more considerable proportion. Yield is generally better for smaller unit sizes, and many operators reconfigure units to smaller sizes. This trend may reverse as economies recover from the effects of the pandemic.
Most business users are start-ups. Self storage is a flexible solution for warehousing, logistics, and even office space with short lease periods. For the operators, business users are an attractive and stable source of income. The average leases are longer than for domestic users. Many operators started offering business users additional services, providing free wifi, meeting rooms, courier services, and mailboxes.
Self Storage Real estate
Self storage became one of the most resilient industries in the 2008 financial crisis and the COVID pandemic. Many investors think of it as an attractive addition to their portfolio, considering the record-low interest rates and high occupancy. Returns on investment grew by 50% in 2021. Despite this, self storage is a niche real-estate investment with a market capitalization of only 2%. For reference, in the US, one of the most mature self storage markets, it is at 9%.
Construction costs saw sharp increases because of logistics problems, caused first by the pandemic and then blockage of the Suez Canal by the Ever Given. The economy is recovering, but in all likelihood, the costs will grow another 8% next year. At the same time, construction sees much scrutiny over its carbon footprint. Buildings contribute to 40% of global CO2 emissions. Many countries are passing legislation to force operators and investors to comply with increasingly strict climate regulations.
85% of self storage real estate in the 6 mature markets are so-called ‘first-generation sites’ — buildings, typically old industrial sites, from when the industry emerged in Europe. Operators have taken to refurbishments and retrofitting to meet carbon goals. The biggest trend is an investment in LED lighting – over 80% of facilities in Europe have made the switch as of 2021. This is followed by passive infrared detection (~60%) and recyclable packing and boxes (~50%). Other green solutions, like solar panels, green roofs, and electric vehicle charging, are less popular - not even 10% of facilities.
Below the line
Self storage, like every other industry, saw changes and challenges during the pandemic. But it emerged victorious and is now an attractive asset class for investors. Overall the prospect of the industry is a positive one. Returns are high and growing. At the same time, the landscape across Europe is changing. Big players consolidate and expand across countries, widening the gap between large and small-scale operators. New, emerging markets challenge the leading position of the big 6, creating many opportunities. But even in the mature markets, there is potential for more growth.
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