Four Ds drive growing storage sector

5:00 AM Wednesday August 17, 2016 Colin Taylor

National Mini Storage’s Albany facility is New Zealand’s largest with 2200 storage units.

Four Ds – density, dislocation, divorce and death – are the key drivers behind the success of the self-storage sector in New Zealand, says John Church, national director commercial for Bayleys.

Church says New Zealand is rapidly following in the footsteps of the US where self-storage has been the fastest growing construction segment over the last 40 years.

“Density refers to smaller homes or apartments that inherently have less storage space, while dislocation is usually a positive change in circumstances like overseas travel, moving in with a partner, or a job transfer,” he says.

“New Zealand investors and owner/operators recognise that the storage segment of the market is one that merits close attention and, if overseas trends are anything to go by, there’s plenty of untapped potential to come.”

Church quotes statistics from the Self-Storage Association (SSA) in the United States which says the total self-storage rentable space US-wide comprises more than 210 million square metres with occupancy rates hovering around 90 per cent and an estimated 9.5 per cent of all American households currently renting a self-storage unit.

“The SSA says it took the US self-storage industry more than 25 years to build its first billion square feet of space then added the second billion square feet in just eight years.

“It’s a sector that’s really taking off in Asia, too, where the middle class is rapidly growing and where small footprint households are the norm” Church says.

“High yields and low vacancy rates make the self-storage industry enticing for operators and Bayleys has observed that in New Zealand, the sector is fairly fragmented with no dominant major owner across the country.

“We have noted that current operators are continuing to evolve their portfolios as the underlying fundamentals of major cities and regional centres change.”

National Mini Storage was one of the first self-storage companies in New Zealand, opening its Penrose branch in 1991. Its Albany facility is New Zealand’s largest with 2200 storage units and construction of its ninth Auckland facility is currently underway in Newmarket with a projected opening date of the middle of next month.

It is a New Zealand-owned and operated private company and managing director Paul McFadzien says this country is a market leader in the industry.

“The multi-level facilities seen here since 1996 have subsequently been replicated outside of New Zealand,” says McFadzien.

“The industry started in the US more than 60 years ago and took off in Australia more than 40 years ago. The sector’s expansion in this country has been driven by the rising population as, with most other key international markets, residential customers comprise around 75 per cent of all self-storage users at any given facility.”

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Sam Kennard, managing director of Australia’s Kennard’s Self-Storage, which now has six storage facilities in the North Island

McFadzien says between that 2000 and 2007, the start of the global financial crisis, many property developers entered the industry seeing it as having far better returns than normal property development/investment.

“Since then the Australian property investment fund Abacus, trading under the Storage King management brand, has been very active in acquiring property, while Kennards has acquired a number of New Zealand facilities.

“More recently, National Storage Australia – the only ASX-listed storage real estate investment trust – has acquired properties in Christchurch and Hamilton and like other Australian-based companies, is actively seeking more.”

McFadzien says National Mini Storage will continue to grow based on opportunities it identifies in its chosen markets. 

“At its most simplistic, an emerging location is wherever there is population growth with a level of disposable income to support the business,” he says.

“New suburbs where buyers are more often than not 100 per cent funded into property do not usually make for good self-storage facility locations – unless there are alternative supporting income streams – until residential property is on its second or third sales churn.

“Given the residential population makes up the majority of our customer base and those customers tend to come from within a three to five kilometre radius, we look to be as close to the houses as possible.

“The key challenges in most markets are land costs, location and the planning controls that apply.”

Church there is strong evidence that Australian money is entering the industry.

“The self-storage sector in Australia is on a roll and some of the big players across the Tasman are eyeing up opportunities in New Zealand. They’re picking that this country’s dynamics are similar to those at play in the Australian market and the likes of Kennards have already made their presence felt.

Kennards Self-Storage is the largest self-storage company in Australia, and now has six storage facilities in the North Island across Auckland, Hawke’s Bay and Wellington.

It’s a private family-owned and operated business spanning 84 facilities with more than 53ha of storage space throughout Australasia. 

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John Church, Bayleys’ national director commercial.