Storage has been a shining star in the real estate investment world for the past five years. Often viewed as a recession-resistant asset class, self storage facilities have traditionally provided stable returns, even during economic downturns. But as markets evolve and new trends emerge, the question arises: Is self storage still a good investment in today’s landscape?

Historical Performance of Self Storage

Self storage has a track record of strong performance. During economic downturns, the sector has proven its resilience, maintaining high occupancy rates and strong revenue growth while other real estate asset classes retreated. Its appeal lies in the fact that people often need storage during life transitions, such as moving, downsizing, or dealing with unexpected life events. These transitions occur regardless of broader economic conditions. In Australia and New Zealand, self storage has seen robust growth over the years, particularly since the end of the Covid-19 pandemic.

The table below demonstrates indicative annual revenue growth using RevPAM growth across test facilities in Sydney, Melbourne and Brisbane as the proxy data selection.

Annual RevPAM (Revenue per available metre) Growth – East Coast Cities
13 yr average	2011-2024	4.59%
10 yr average	2014-2024	5.10%
8 yr average pre-Covid	2011-2019	2.38%
3 yr average post Covid	2021-2024	10.51%

A clear shift in performance is evident since the pandemic. Increased demand over the uncertain pandemic period raised the awareness of self storage. Recent research undertaken by the Self Storage Association of Australasia revealed that 9.2% of the adult population is currently using a storage solution, up from 8.3% in 2020. Current demand is driven by urbanisation and smaller housing, minimalist living, home working, and changing consumer behaviours.

Current Market Dynamics

While historical performance paints a rosy picture, current market dynamics require careful consideration. Here are some key factors influencing the self storage market in Australia and New Zealand:

1. Supply and Demand: In major cities like Sydney, Melbourne, and Auckland, demand for self storage remains strong. However, some sub-markets are seeing a surge in new developments, leading to increased competition. Oversupply in certain markets can put downward pressure on rental rates and occupancy levels. The number of self storage facilities in the pipeline increased by 80% in 2024. Conducting thorough market research is crucial to avoid investing in saturated areas.
2. Changing Consumer Behaviour: The rise of e-commerce and remote working has influenced storage needs. While some small businesses require additional storage for inventory, others are downsizing their office spaces, creating demand for personal and commercial storage solutions.
3. Economic Uncertainty: Inflation, high interest rates, and economic uncertainty can impact consumer spending and, by extension, the self storage industry. However, during economic downturns, people and businesses often downsize or move, potentially increasing the demand for storage.
4. Technological Advancements: Modern self storage facilities in Australia and New Zealand are leveraging technology to enhance customer experience and operational efficiency. Features like online rental platforms, dynamic pricing solutions, and smartphone-operated access can increase profitability and attract tech-savvy consumers but also require higher upfront investment.

Pros of Investing in Self Storage

1. Recession-Resilience: As demonstrated in previous economic downturns, self storage facilities often perform well when other real estate sectors struggle.
2. High Profit Margins: Compared to other real estate asset classes, self storage facilities generally have lower operating costs, resulting in attractive profit margins.
3. Scalability: Self storage facilities can start small and expand as demand grows, offering flexibility to investors.
4. Diverse Revenue Streams: Beyond rental income, facilities can generate revenue from services like merchandise, insurance sales, and van rentals.

Cons of Investing in Self Storage

1. Market Saturation: In areas with excessive supply, achieving desired occupancy levels and rental rates can be challenging. This is an important consideration for developers and new entrants.
2. Management Intensity: Despite technological advancements, managing a self storage facility can be labour-intensive, requiring hands-on management. The alternative is to engage a professional management company.
3. High Initial Costs: Building or acquiring a self storage facility requires significant capital investment. Investors must also factor in ongoing maintenance and marketing costs.
   

Trends Shaping the Future of Self Storage

1. Urbanisation: As urban areas in Australia and New Zealand become denser, demand for self storage near city centres is likely to grow. Facilities that offer convenience and accessibility will have a competitive edge.
2. Sustainability: Energy-efficient features and designs are gaining traction. Investors who adopt sustainable practices may attract environmentally conscious consumers. It is also likely to assist net operating profit.
3. Varied Scale: Facilities have been getting larger to capitalise on operational efficiencies. An emerging trend of off-site managed satellite facilities is on the rise also. This results in a varied product being offered to the market.
4. Automation and AI: Technology continues to play a significant role in streamlining operations. Automated kiosks, keyless access, dynamic pricing models, and data analytics are becoming standard features in modern facilities.

Is Self Storage Still a Good Investment?

The answer largely depends on the investor’s strategy, location, and market conditions. Self storage remains a viable investment for those who conduct thorough due diligence and understand the nuances of the industry. Here are a few tips for potential investors:

1. Research the Market: Analyse local demand, competition, and demographic trends to identify areas with growth potential.
2. Evaluate the Facility: Assess the property’s condition, amenities, and technological capabilities. Modern features can differentiate a facility in competitive markets.
3. Understand the Economics: Calculate the potential return on investment (ROI), factoring in acquisition costs, operational expenses, and expected rental income.
4. Stay Updated: Keep an eye on industry trends and adapt strategies accordingly.
5. Consider your overarching investment goal: Self storage is a great long-term investment, however timing is everything. Consider your investment timeframe and potential divestment plan before you commit. Aside from development costs, building occupancy takes time. The true value of a self storage facility comes with established revenue. With your end goal in mind, you can be strategic about your investment and divestment strategy.

Conclusion

Self storage remains a compelling investment opportunity, particularly for those who are willing to navigate its challenges. Its recession-resilient nature, coupled with evolving consumer needs positions it as a dynamic and potentially profitable asset class. However, like any investment, success in self storage requires careful planning, market research, patience, and a willingness to adapt to changing conditions. Four Leaves can help you make the right decision through sharing insights and knowledge. By staying informed and proactive, investors in Australia and New Zealand can harness the enduring appeal of self storage to achieve their financial goals.

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