Self storage has become a desirable asset class amongst investors due to its defensiveness and reliability in testing property markets. Over the pandemic, increased demand for self storage resulted in double digit annual growth in most market. If you’re considering diving into this sector, this guide will help you understand the process and give you more chance of success.

Why Invest in Self Storage?

Self storage has several unique advantages:

1. Resilience During Economic Downturns: Regardless of the economy, people lean on storage. During recessions, individuals and businesses downsize, young adults move home and flexibility becomes a priority. In prosperous times, people accumulate more items, renovate and trade up.
2. Low Overhead Costs: Unlike residential or commercial properties, self storage facilities have minimal maintenance costs. Expensive upgrades are not required. There are no tenants to deal with directly, and utility costs are generally low.
3. High Demand: The self storage market has grown significantly over the past two decades. According to the Self Storage Association of Australia, approximately 9% of the ANZ adult population is using some form of storage solution. Demand is growing and awareness of the product is increasing.
4. Flexible Investment Options: Investors can choose from various approaches, including building facilities, purchasing existing ones, or investing passively through REITs and private investment syndicates.

Steps to Investing in Self Storage

1. Research the Market

Begin by analysing the self storage industry in your area. Key factors to investigate include:

• Demand: Assess local demand by examining population growth, housing trends, and the presence of competitors. Areas with smaller housing and an increasing population often have higher demand for storage.
• Competition: Identify existing self storage facilities in your target area. Seek to understand their occupancy rates and pricing to gauge market saturation.
• Economic Trends: Look at the local economy and demographic data. A growing population with high levels of disposable income often correlates with higher storage demand.

2. Choose an Investment Strategy

There are multiple ways to invest in self storage, each with its pros and cons:

• Buy an Existing Facility: Purchasing an established self-storage business offers immediate income. Ensure you conduct due diligence, analysing financial statements, occupancy rates, and maintenance records. Opportunities can be limited so connect with established self storage sales agents.
• Build a Facility: If you’re targeting a high-demand area with little competition, constructing a new facility might be a profitable option. However, this requires substantial capital and time to secure permits and build, plus the facility needs time to build occupancy before strong cashflow can be extracted.
• Invest in REITs: Real Estate Investment Trusts (REITs) focused on self storage, such as National Storage and Abacus Storage King allow you to invest in the sector by selling shares. This allows for a more affordable buy-in price, it’s more liquid and it provides a hands-off approach.
• Invest in a Private Syndicate: There are established investment syndicates and funds that regularly seek investors to allow them to grow. Do your research on their success to date and be comfortable with the terms of investment.

3. Secure Financing

Self storage investments often require significant upfront capital. Options for financing include:

• Traditional Loans: Banks and financial institutions may offer loans for purchasing or building facilities. Be prepared with a solid business plan and financial projections.
• Private Investors: Partnering with private investors can help you share the financial burden and risks.
• Small Business Loans: If you’re a first-time investor, small business loans can provide a lower barrier to entry.

4. Research the Location.

The success of a self storage facility hinges on its location. Look for:

• High-Traffic Areas: Sites near residential neighbourhoods, commercial hubs, or highways typically perform better than back-street industrial locations.
• Accessibility: Ensure the location is easily accessible for customers with vehicles of all sizes.
• Exposure: Facilities that are visible from main roads or have prominent signage attract more customers.

5. Operations and Management

Efficient management is crucial for profitability. Key aspects include:

• Technology: Implement industry management software such as Storman or Sitelink for seamless operations, including managing customers, online sign up, enquires, using AI and payments.
• Security: High-security standards—such as CCTV, automated gated access, and individual unit alarms—can attract more customers and justify premium pricing.
• Marketing: Develop a strong marketing plan to promote your facility. Leverage online advertising, local partnerships, and social media.
• Staffing: Decide whether you’ll manage the property yourself or hire staff. You may also wish to engage a professional management company with an established brand for optimal success.

6. Evaluate and Scale

Once your investment is up and running, monitor its performance regularly:

• Revenue Growth: Look for opportunities to increase revenue through premium units, ‘other income’ (such as merchandise sales), and regular rent adjustments.
• Cost Management: Keep expenses in check without compromising service quality.

If your first investment is successful, consider scaling by adding new facilities or diversifying into different markets.

Challenges to Consider

While self storage investments offer many benefits, they’re not without challenges:

1. Upfront Costs: Initial capital requirements can be high, especially for new constructions.
2. Zoning and Permits: Council requirements can delay or hinder new developments.
3. Market Saturation: An oversupply of self storage units in a region can impact profitability.
4. Economic Factors: While resilient, self storage isn’t entirely immune to economic downturns.

Conclusion

Investing in self storage can be a rewarding venture with the potential for steady income and long-term income and capital growth. By researching the market, choosing the right strategy, and managing your facility effectively, you can build a profitable self storage portfolio with long term rewards.