What grade is your self-storage facility?
Tim Creighton of Urbis outlines the development of new initiatives to assist the self- storage industry.
The investment profile of self-storage continues to evolve following the listing of National Storage REIT (NSR) on the Australian Stock Exchange (ASX) in December 2013 and the subsequent heightened institutional interest generated.
To stand alongside other mainstream asset classes, the self-storage industry will increasingly be challenged to provide greater market transparency and elevate the production of meaningful professional data.
The 2017 Summit provided Urbis with the opportunity to exhibit two new initiatives considered significant developments in the progression of self-storage as a mainstream asset class:
- Urbis Self Storage Grading System (“Grading System”); and
- Urbis Self Storage Supply Tracker (“Supply Tracker”).
Urbis Self Storage Grading System
At present, all self-storage facilities are grouped under the umbrella term “self-storage”. A purpose built self-storage facility in an affluent metropolitan area should be differentiated from a regional self-storage facility that is managed off-site by a local real estate agent.
The application of asset grading is a well established practice in the real estate industry, particularly for commercial office buildings and shopping centres. The formulation of an asset grading system specific to self-storage (the first of its kind in Australia and New Zealand) was undertaken in close consultation with both internal and external industry stakeholders.
Industry stakeholders considered the importance (weighting) of nine key features in assessing the grade of a self-storage facility. The key features comprised both location and asset based features (as shown in Figure 1). Results showed that location based features “Area”, “Demographic Profile” and “Competition” derived the highest weighting — they were considered most important.
A tenth feature, “Financial Performance”, was initially included, but later removed following further stakeholder engagement. The financial performance of a self-storage facility was recognised as a product of the nine key features, and its exclusion would allow self-storage facilities recently built or in occupancy build-up to be comparatively analysed.
The Grading System provides a transparent analysis tool for the grading of self-storage facilities. The Grading System enables self-storage stakeholders, including valuers, financiers, analysts, investors, owners and operators, to freely benchmark and differentiate between self-storage facilities without the need for financial trading detail.
Users assign a rating from 1 to 5 (with 5 being the highest) to each of the nine key features applicable to a specific self-storage facility. Based on the respective weightings of the key features, the Grading System generates an overall score out of 100 and accompanying grade (as shown in Figure 2). The highest grade of Premium represents an overall score above 85.
The Grading System is a self-assessment tool. The validity of the Grading System is dependent on the level of objectivity applied by the user, and is not a measure of return on investment, nor an assurance of financial performance.
“We believe the grading system is a good incentive to raise standards across operators throughout the industry” — Thomas Whalan (Rent A Space Self Storage).
Urbis Self Storage Supply Tracker
- A perceived undersupply – where self-storage supply does not cater for self-storage demand;
- Significant population growth forecasted – where increased self-storage demand is anticipated; or
- Strong self-storage demand drivers (household income, percentage of renters, percentage of apartment dwellers) – where the key demographic characteristics support high levels of self-storage demand.
Stakeholders and market observers regularly ask what the growth of the self-storage sector is. The self-storage industry is experiencing an unparalleled level of self-storage development in major metropolitan locations.
The Supply Tracker monitors new self-storage facilities and provides an interactive database for industry participants to make informed investment decisions.
For confidentiality reasons, the disclosure of a new self-storage facility requires a lodged development application at the minimum. However, some contributors have acquired a site for a new self-storage facility and requested disclosure prior to the lodgement of a development application to “mark their territory”.
The Supply Tracker is currently monitoring 35 new self-storage facilities across the four major metropolitan markets of Sydney, Melbourne, Brisbane and Auckland (New Zealand). Key observations to date:
- 28 new self-storage facilities (80%) will comprise purpose built self-storage buildings;
- 9 self-storage facilities (~26%) will be owned by new market entrants; and
- The new self-storage facilities will represent self-storage growth of between 11% and 12% for the major metropolitan markets (apart from Melbourne – 8% to 9%).
“The supply tracker will be a very influential data point for industry operators in their investment decisions. As the largest single developer of new self-storage supply in Australia, to have a consolidated place to examine the potential supply will be extremely helpful as we consider our acquisition opportunities” — Sam Kennard (Kennards Self Storage).
The long-term reliability of the Supply Tracker, its extension into other metropolitan markets (such as Adelaide, Newcastle, Perth, Wellington, New Zealand), and the associated industry research produced is reliant on the ongoing participation and support of SSAA members.
Should you wish to contribute, please contact Tim Creighton (details below).
The institutional transition of the self-storage industry will require continuous education of the wider investment community, some of which still consider the hotel industry, where occupancy can decrease by 50% overnight, comparable.
Research highlights the correlation between product knowledge (of self-storage facilities) and self-storage demand. The investment profile of self-storage will similarly benefit from sustained initiatives and research projects that provide greater understanding of the self-storage industry, particularly to external stakeholders (financiers, analysts, investors) and new market participants.
Urbis looks forward to the increased use of the two new initiatives throughout the self-storage industry. Both the Grading System and the Supply Tracker will be available on the Urbis website soon, with a direct link from the SSAA website.
In the interim, the Supply Tracker can be accessed at https://goo.gl/EBZTp2>