AT FIRST GLANCE, THE ARGUMENT FOR SELF-STORAGE OPPORTUNITIES IN EUROPE LOOKS COMPELLING. With 32,000 stores in the United States but only 350 in the United Kingdom, 70 in France and so on, the European market is nowhere near as developed as in America. There is certainly an opportunity, and if you listen to industry suppliers, you would think this was the biggest thing since the California Gold Rush. In practice, self-storage in Europe is attractive, but not quite that straightforward.

A Property Business

Self-storage is a combination of a property and retailing business. Therein lie its attractions and challenges. Property—particularly property development—tends to be country-specific. You have to be comfortable acquiring freeholds on an unconditional basis and getting planning permission afterward in some countries, especially if the site is a strong one on a main road.

As you might imagine, this demands a good understanding of how local planning and building laws work, and an understanding of when "no" means "no" and when it actually means "yes." If it is a leasehold you are after—or a leased building is all that is available in your chosen location—you have to be happy with the lease terms, including rent reviews, your ability to extract yourself from the lease if it doesn't work out, and who will pay for what when something like the roof needs replacing. It is also helpful to speak the local language.

You can bypass a lot of this by going for the "easy" site—a secondary building on a side street—and a conditional deal. Just don't be surprised when someone comes in and out-positions you on the main road a year later. It can often take one to two years from finding the site to actually opening it, so factor extra time into your business plans. You should expect keen bidding from residential, office, retail or even other self-storage developers on good sites, so your access to prospective deals will change over time.

A Retailing Business

Fortunately, the retailing part of the business is not quite so complicated. The forces driving people to use self-storage are the same in Europe as in the United States, so many of the skills in marketing a store, managing the price and unit mix, and training and motivating staff are the same. There are, however, some key differences of which you should be aware.

First, land and buildings cost more in Europe, sometimes a lot more. This means you have to charge the customer more to pay for all that extra capital you had to invest. For example, in the United Kingdom, self-storage prices average about £16 (approximately $25) per square foot per year with London prices up to £26 (approximately $41) per square foot. This is because it is quite possible to spend £4.5 million (approximately $7.1 million) or more on building a 50,000-square-foot facility in London.

The high cost of land in European cities generally means multistory properties are required to get enough storage income. Local building regulations will typically demand high floor loadings that further push up construction costs. Fire regulations will also vary from country to country and within a city. For example, following the Düsseldorf airport fire, German sprinkler requirements increased, and rules were introduced about how close you could store items to a sprinkler head.

The higher price for self-storage means customers view the product as more of a luxury than a necessity, and domestic customers will, therefore, stay for less time—say four rather than eight months. Businesses will opt for cheap warehousing when they get large enough. All this affects lease-up and means you need a good site, the right balance between stable industrial and volatile domestic users, and a large, well-populated area to generate enough local demand for the store. Investors need to understand the longer lead time necessary to reach attractive returns that can then be leveraged with bank debt.

Customer awareness of self-storage is low. It is growing, but the typical consumer will not have heard of the concept, so a lot of your marketing has to do with explaining how to use the product. Most domestic customers moving house use contract removalists. These typically have their own storage facilities, so there is another link in the chain to break. Consumer habits and housing types vary by country. This, along with the fundamental price difference, means the ultimate penetration of storage space per capita may grow, but will probably not reach U.S. levels.

Check out who is already in the market. The attractions of self-storage have not been lost on local European players such as Access or Big Yellow, who feel their ability to pick the right property and copy or improve the best facility design and retailing disciplines—often from the United States—will make up for their lack of years in the industry. A couple of U.S. groups, Shurgard and Devon Self-Storage, have also been active in Europe for several years.

Although supply is not at U.S. levels, the rate at which it is being built in certain cities, particularly London, is high, and most new facilities are built to the best U.S. "third- generation" standards. This creates local pockets of oversupply, temporarily affecting prices until demand catches up. The U.S. situation, with several self-storage facilities lining a freeway and all being well occupied, has not yet happened in the United Kingdom. Where you do get stores too close together, they split the more limited demand around them and, consequently, trade at low occupancies.

You need to develop clusters of stores in a city if you want to build a decent size business and share management and marketing costs. One store on its own, particularly if it is a long way from home, can quickly turn into a problem. A scattering of stores across one country or (heaven forbid) several countries will soon have you reaching for your travel agent and the Prozac.

In Conclusion

In summary, self-storage development in Europe is exciting; but it would be wrong to make it sound as simple as some would have you believe. With the right blend of skills—particularly in local property development and retail management—a solid understanding of national differences and an international mindset, the industry offers some good opportunities. You also need a committed investor who understands the long-term scope to develop a business from the ground up.

Jonathan M. Duck is the CEO of Access Storage Solutions, based in Hertfordhsire, England. Access operates 42 self-storage centers in the United Kingdom, mostly in London, and 16 in France, mainly in Paris. He also manages Miller Self Storage, which has 20 facilities in Australia. The company is also linked to Storage USA through its holding company, Security Capital European Realty. For more information, call +44 (0)1923 717 707; visit www.accessstorage.com.