The last 18-months has been a quiet period for the national self-storage market. Transactions over the last year (to March 2024) totalled just over $95 million after peaking in late 2021 and early 2022, representing over $1 billion in transactions (and yields as low as 3.7 per cent). The fall in activity is indicative of the overall decline in investment activity across the commercial market, driven more so for the industrial sectors by the reduction in quality assets coming to market than reduced investment demand.
During 2021 we saw investment activity throughout the country with markets such as Queensland, Western Australia, ACT and South Australia growing their appeal, while historical investment of this asset was dominated by NSW and Victoria. Offshore buyer groups (in particular USA) converged on Australia, representing more than 40 per cent of all investment activity over this period. More recently this has subsided given the change in size and quality of assets which have transacted in more recent years. While larger institutional buyers were active, we did also see smaller privates capitalise on the growing segment, particularly in the sub $10 million price point. Private investors remain the most active buyer and seller type over the last 18 months, dominated by Sydney and Melbourne assets in the small to mid-size range, with yields achieving tight capitalisation rates ranging up to 6.5 per cent.
The appeal of self-storage units is wide, occupancy across Australia is estimated at close to 90 per cent, with strong growth in average monthly rents recorded over the past five years. Growth in rents has come from increased demand to occupy these units, growth in insurance and security costs (notably due to the 24-hour nature of many facilities), improved technology, and high land costs for new developments. Demand for facilities over this time has seen a generational shift, gen-Z users are one of the larger occupiers due to changing housing trends. A strong residential market has seen many occupiers needing to reduce their household footprint due to increased rents and values, as a result having less space for belongings and general “stuff”. Remote working is another contributing factor to the need to free up space and store goods as well as the monetisation of hobbies with an increase in sale of goods on platforms, including Facebook Marketplace, Instagram and Depop, which may require storage.
Baby boomers are another major users of self-storage facilities, with downsizers more inclined to hold furniture, heirlooms, and antiques when moving for far longer than any other age group. Furthermore the storage of boats, vehicles and other luxury items are often reserved for self-storage facilities when they need to be accessed only irregularly.
Given this high occupancy and increased returns, the ongoing need for new establishments remains high, with the end product also in high demand by investors. The high cost of land and limited appropriately zoned, vacant land has been a stumbling block for new development, particularly within metropolitan areas.
Despite the rise in construction costs and availability of labour, new completions of self-storage facilities peaked in 2023 where over 200,000sqm of new supply entered the market. Queensland dominated the supply pipeline during this period, representing 43.2 per cent of all new completions, fuelled by a strong increase in population and ongoing housing supply issues. This year to date we have recorded 52,220sqm of completions, more than half in Queensland followed by Victoria. Assets under construction and projected for completion this year equate to 76,320sqm, again dominated by the Sunshine State followed by NSW.
Given the ongoing increases in population expected for Australia and the mismatch against housing supply, the additional storage of household goods will be a trend unlikely to dissipate. Projects are expected to continue to be developed across the country, with east coast regions forecast to outperform. The increased cost associated with the land and development of these assets will set new benchmarks in value for both the end user and investors keeping rents elevated and capitalisation levels tight, particularly as we see greater offshore buyer activity return to the Australian commercial property market in the short to medium term.
