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Self storage growth slows down

THE drop in building activity and sales activity in the existing housing market has been felt sharply by the self-storage industry.

According to the WA representative of the Self Storage Association of Australasia and proprietor of Self Storage South West in Busselton, Peter Mitchell, the industry has been going through a very flat period since the GST was introduced in July and brought on a building slowdown.

Mr Mitchell said the slowdown had meant that the holiday period, including the first two weeks of January – traditionally the busiest time of the year for the industry – had been very lacklustre.

January is normally busy because it was a period when many people moved to new homes and jobs. With more than 80 per cent of the industry’s revenue coming from the domestic market any change on this front can have a big influence on occupancy rates and the profitability of self-storage units.

Sentinel Self Storage general manager Kevin Haigh who runs an operation in Bassendean and Maddington said the increase in prices charged for units because of the GST had also resulted in some customers turning away.

“It was a huge growth industry until someone brought out something called the GST,” Mr Haigh said.

Yet while the industry has been doing it fairly tough over the past six months, most industry participants remain optimistic about the future of self-storage facilities in WA.

The growth in inner city living, apartments, retirement villages and smaller blocks spells good news for the industry.

“It’s an industry that has a growing demand because of the growing mobility of people,” Mr Mitchell said.

In the Eastern States this has led to a number of multi-storey facilities in key inner city areas. While this has not occurred in Perth as yet, some are suggesting this will be the way of the future.

One of the major concerns for the WA industry is the threat of increased competition which would result in lower occupancies and price undercutting.

In the Eastern States, Millers Self Storage has about 25 facilities while Kennards Self Storage has a further 16-18 facilities and are understood to be showing an interest in the WA market.

“The industry is fairly healthy but we have to make sure we don’t over-build as has occurred in Victoria,” Mr Mitchell said.

The Victorian industry was now dealing with occupancy rates approaching 30 to 40 per cent.

What holds potential investors in their tracks, despite the attractive 10 to 15 per cent return from a fully operational facility, is the high start up cost and long lead time before returns are adequate.

Mr Mitchell said it could take more than five years before a new facility was 60 per cent occupied and units are estimated to cost more than $3,000 to build.

Mr Haigh said it was very difficult to put a value on self-storage units because there was no historical sales data. But one of the main considerations was “location, location, location,” he said. Like any real estate it is important to be in a good area and close to a large population.

The potential population growth of the area, the visibility of the property to passing traffic and the location of competitors also needed to be considered when purchasing a self-storage facility.

While the value of the industry in WA is estimated to exceed $50 million and growing it is still considered too small to attract interest from institutional investors – unlike the shopping centre industry.

Mr Mitchell believes it is unlikely that large investors would be attracted to self storage because it was very much hands on and good managers were a rare commodity.

About half of the 18 operators in WA are still owner-managed. Most had injected their own funds into the facility rather than being bank financed.

Armadale-Kelmscott Self Storage proprietor Hugo Hamersley was attracted to the industry in late 1997 – when he purchased the Gilliam Drive facility from Global Finance for a reported $1.3 million – because of the good cashflow and because it was ”easy to keep an eye on” and was fairly straight forward.

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