As Australia’s inner cities densify and our living patterns trend towards communities comprised of apartment dwellers, the impact of this stretches far beyond the design of communal areas and public spaces.
Long regarded as an industrial asset class, the self-storage sector is one of many beneficiaries of the rapid urbanisation of our cities and a sector that is undergoing rapid transformation due to technology.
According to a recent IBISWorld report, Australia’s self-storage industry is worth approximately $1.1 billion per year and expected to grow by a further 3.3 per cent in 2017.
So, what is the self-storage sector, how does it function and how is it changing?
Originally started in the United State in the 1960s, and followed by Australia in the 1970s, the self-storage sector comprises properties and businesses that provide storage space for tenants seeking to store and access goods, such as cars, boats, furniture and home items.
Over the decades, the self-storage sector has evolved from a series of ‘sheds’ into an established commercial real estate asset class comprised of major institutional investors and large private owners.
Today, the two major players in Australia - National Storage and Kennard’s Self Storage, have together almost 1,000,000 square metres of space across over 100 centres.
According to National Storage Managing Director, Andrew Catsoulis, there are more than 1,000 self storage centres in Australia and the major operators represent approximately a quarter of the industry – the industry is highly fragmented with the majority of centres owned by independent operators.
Whilst recent acquisitions by the major players has signalled that the sector is rapidly consolidating, it still has a long way to go.
A recent National Australia Bank (NAB) report indicated that the top five operators control only 35% of the total sites in the country.
From a demand perspective, the nature of the occupancy suggests that it is ripe for disruption, with about two-thirds of the sector occupied by individuals – predominantly renters and separate house users - and only one-third occupied by businesses.
According to the NAB report, there are three key factors that are contributing to three sector’s growth:
Greater Awareness – As the industry consolidates, the marketing budgets grow accordingly. There is a growing customer awareness and appreciation of the benefits of self-storage in the marketplace.
Changing Living Arrangements – Lower household ownership rates, an increase in higher density living, affordability issues and the growing downsizer market is leading the charge for higher demand in storage services.
Changing Lifestyles and Habits – Gen Y’s love of travel and flexible lifestyles, coupled with getting married later in life, is driving the trend among younger occupants.
As one of many sectors in the industry that is both a potential beneficiary and a victim of the rapid change to our social and economic models, what is next for the sector?
There is no disputing that Airbnb’s dramatic rise is now being felt across the hotel and residential apartment sector as institutional and private investors adapt to the disruption created by a peer-to-peer marketplace.
The self-storage sector is no different with a handful of start-ups – both local and international – reshaping the sector.
An industry perspective shared by Catsoulis who states the pace of change in the digital environment presents a number of opportunities for self storage, yet balances this by adding there will always be a need for the security and flexibility that traditional self storage offers.
Regarded as the Uber of the self-storage sector, Spacer is an Australian startup founded by serial entrepreneurs Mike Rosenbaum and Roland Tam and is focused on letting occupants take advantage of under-utilised spaces in people’s homes, such as garages, sheds and spare bedrooms.
Rosenbaum, who also co-founded e-commerce deals site Deals Direct, said he came across the self-storage sector during his previous life running his previous company.
“I was familiar with the challenges of that model and the expense and the inconvenience and I thought: ‘There’s so much space all around us, in and around people's’ homes, things like garages and there’s lots of empty warehouses and offices and things like that that could be divvied up and used for storage as well,” he told Business Insider.
He estimates that the Australian self-storage industry – worth just over $1 billion per year – has close to $5 billion of untapped potential when factoring in the peer-to-peer market.
After launching in October 2015, Spacer has grown to over 2,000 spaces and expects revenue to grow 500 to 600 per cent in the next twelve months.
Catsoulis adds that another advantage to the peer-to-peer market and uptake of digital technologies is, the numerous opportunities for businesses to talk about storage and its benefits to grow product awareness and the market more broadly.
In a major announcement, the company recently announced a partnership with Costockage, Europe’s largest peer-to-peer storage provider, to expand the offering through the lucrative Asian market, along with other international markets. The France-based business is now Europe’s largest self-storage provider with over 5,000 listings and over 600,000 cubic metres of storage space.
Other players in the space include SpaceWays, Boxly and MyStorage.
Like most things in today’s world, the complexity of the situation is apparent.
On the one hand, the underlying demand fundamentals appear to be quite sound. Australians – both young and old – are living more temporary lives, in smaller homes, for shorter terms and with less people. This should naturally support the growth of the sector.
Yet, on the other hand, the notion of peer-to-peer self-storage is the ‘Black Swan’ that could potentially disrupt the sector in the same way that Airbnb and Uber have completely revolutionised the hotel and taxi industries, respectively.
The paradoxical nature of the self-storage sector is one of its most fascinating attributes and a compelling reason to follow it closely.
A sentiment shared by Catsoulis who sees the future state of self storage as exciting.
“Demand drivers continue to strengthen, the sector is becoming more established and product awareness continues to grow. There are opportunities to expand our product offering, enhance customer experience and demonstrate how lifestyle accretive storage can be.” he says.