When reflecting on the pandemic and its impact on the listed real estate industry, it is easy to quickly think of those sectors that have proved to be the industry’s shining lights. E-commerce, logistics and residential have all shown incredible resilience and by all accounts look set for future growth, for which they should be celebrated.
But there remains one sector, which despite an equally impressive performance since Spring of 2020, has managed to fly under the radar: self-storage.
It is certainly something that Andy Jones, Chief Financial Officer of Safestore, is keen to point out: “From the end of the first lockdown, the bounce-back has been significant.” So much so that Jones highlights Safestore’s 19% like-for-like revenue growth for the quarter to July 2021.
And it’s not just Safestore that can point to such some impressive numbers post-Spring 2020. Jim Gibson, Chief Executive Officer of Big Yellow Group, suggests that “self-storage is certainly up there with industrial and logistics”. And when the company posts 14% like-for-like revenue growth for the quarter to June 2021, it’s hard to argue with his assessment.
Of course, the sector has been impacted. Like the rest of the real estate industry, its share prices took a heavy hit during the early stages of the pandemic. So, with this in mind, how has a sector that remains in its relative infancy in the European market managed to rebound so strongly?
For Marc Oursin, Chief Executive Officer of Shurgard Self-Storage, it largely comes down to the fundamentals of the asset class: “Demand is ultimately driven by a combination of urban density and lack of space during life-changing moments,” and when a global economic shock takes place, demand only goes in one direction.
The UK market is a case in point. With the Government keen to stimulate economic activity, it looked to incentivise movement in the housing market through measures such as the stamp duty holiday. The result of which was 213,120 house sales in June alone. The most in a single month since records began.
And as sales of homes skyrocket, so does the demand for self-storage. “There’s undoubtedly a clear link between the residential market’s uptick and that of self-storage,” says Gibson.
But it wouldn’t be fair to suggest that the strong performance is simply a product of increased demand but also increased awareness. “A lot of people still don’t really understand what self-storage is, and the pandemic gave reasons for new customers to be introduced to the product,” says Jones.
And Gibson agrees, claiming that the pandemic has rapidly “accelerated people’s understanding of self-storage”.
However, despite growing awareness, the industry is far from reaching its ceiling. Cushman & Wakefield’s annual self-storage report showed that only 50% of the UK has a good awareness of self-storage; unsurprising given the sector has only really been around for 25 years on this side of the Atlantic. Simply put, there’s a sizeable market that is yet to be tapped into.
Keeping pace in a changing environment
It would be fair to say that the self-storage sector uniquely benefited from certain stimulus measures across the continent, but it has also been one of the major benefactors of wider market trends within the real estate industry. Whether it is the move to working from home en masse or the explosion in demand for e-commerce, self-storage has been the beneficiary.
However, with much of the world beginning to emerge from the pandemic and market dynamics shifting once more, many are beginning to ask whether this success was just a flash in a plan.
Jones is forthright in his rejection of the view: “No, we haven’t seen any trends that suggest this is the case.” His sentiment is shared by Oursin, who feels the world will not just revert back to the pre-pandemic status quo and that “the drivers of demand may well be permanent factors”.
These bullish assessments are far from unfounded. We are, of course, seeing a gradual return to office working, but the hybrid nature of people’s interactions with the office environment isn’t going anywhere. You just have to look at the steps office developers are taking to accommodate this to see that a hybrid work environment is very much the future.
As such, the continued restrictions on space in people’s homes and the “need to declutter to make room to work”, as Gibson puts it, will be keeping self-storage’s occupancy rates high.
And it’s a similar story with e-commerce. The rapid “rise in online sales saw demand for scale storage and e-fulfilment,” says Oursin, and we aren’t just going to see this need fall off a cliff.
There is no doubt retail is undergoing somewhat of a resurgence as restrictions ease, and the vaccine roll-out continues to pick up pace across the continent. But even with footfall increasing, that need for e-fulfilment isn’t likely to diminish. Something Jones is quick to point out: “Businesses will still need to combine that physical presence with online capacity.”
Of course, we should tread carefully when making predictions about future market dynamics, and any assertions on consumer behaviour should be treated with caution. However, when we look at the early indicators of what the ‘new normal’ may look like, Shurgard’s decision to increase their target revenue growth for 2021 from 4-6% to 8-10% doesn’t seem misguided.
Digitalisation: A fad or the future?
The sector has clearly managed to keep speed with the acceleration of certain trends within the industry since the start of the pandemic, but it is a trend that predates March 2020 that continues to dominate future thinking.
Digitalisation is nothing new. Almost the entire industry continues to explore how systems and services can be optimised through the adoption of certain technologies. Yet, when it comes to self-storage, there appears to be little consensus on its importance.
For some, the future is all about digital. “Our growth strategy has always included significant investment into technological advancement,” says Oursin, as they look to create an offer “that is more in line with our digital society.”
It’s easy to understand this way of thinking. Investment in effective IT systems can give customers an efficient end to end digital experience, allowing them to choose, book, pay and move in using just their mobile phone.
A process that Gibson sees clear value in: “Time-saving automation is hugely beneficial to our customers.” Though he does add: “It is very important for us to maintain a physical, face-to-face interaction with our customers when they arrive at our stores to move in or move out, and in particular for businesses to build trust, as they tend to be with us for longer periods of two to three years on average.” An approach that Gibson believes helps Big Yellow deliver its company values of helpfulness, empathy and flexibility.
But the question remains, can efficient automation build tenant relationships in the way effective customer service can? Or do these relationships even matter in a sector defined by relatively high tenant turnover?
“When the online service is seamless and efficient, it doesn’t erode the customer relationship,” says Oursin. Quite the opposite. In fact, Oursin firmly believes that enhancing the digital experience increases loyalty and satisfaction amongst customers.
This sentiment, however, is not shared by all. For Jones, automation is important but cannot come at the expense of customer relationships: “The interaction between staff and potential customers in the selling process is vital to not only making sales but building trust.”
Where Shurgard is prioritising creating a best-in-class digital experience, Safestore is moving in a dual direction, combining digital capability with person-to-person interaction and investing in high-quality sales training and development programmes to upskill their staff.
“Every potential customer that enquires online will then receive a phone call from one of our team to help guide them through the process,” and most importantly, “to ensure they are actually buying the right product,” says Jones.
It is easy to see the value in both positions; many of us are increasingly time-poor, and efficient digital customer experiences help us get what we need, where we need it, when we need it – and quickly. Whilst at the same time, in an industry with such low familiarity, having those person-to-person interactions can help us navigate the offering and build lasting, human relationships.
Of course, both Shurgard and Big Yellow understand the value of person-to-person interaction, particularly when it comes to in-store experience; whilst, for Safestore, technological development remains a key part of its business. However, when it comes to the role of technology in their selling processes, differences remain. This is not to say that either approach is wrong, but it will certainly be fascinating to see how the divide on digitalisation in the sector unfolds.
Since the Spring of 2020, we have paid considerable attention to how the listed real estate sector is recovering, and thankfully there have been many positive stories to tell. Residential, logistics and e-commerce will rightly continue to take the plaudits for their impressive bounce back, but we should not ignore what has been a quite remarkable period for the self-storage sector. A benefactor of changing market dynamics, but by no means a temporary success story. In a climate still characterised by uncertainty, it is perhaps just a case of more of the same for self-storage.