|Copyright 2014 by Virgo Publishing.|
|By: Paul Logchies|
|Posted on: 04/01/2006|
Building a self-storage company in Europe isn’t the easiest way to make a living, though a well-executed and professional project can certainly be rewarding. Like any other emerging and still immature market, self-storage faces a variety of problems in most European countries. Perhaps the biggest is lack of financing. Equity from institutional or private investors is still rare, while bank financing can be a sheer impossibility due to the industry’s lack of reliable data and undocumented track record. The public’s lack of awareness about self-storage also remains an enormous obstacle.
Before delving deeper into the topic of finance, I’d like to make a quick observation about the need for public education about self-storage. For the European industry to thrive, it must reach a certain kind of customer, one who will use storage facilities as a continuing extension of his home’s limited capacity. We need to lure these kinds of long-term tenants, not just those with a temporary need, because they are more numerous and will rent smaller units at higher prices per square meter.
These consumers exist, but operators need to find better ways to target them and convince them to start using self-storage. Only when that happens can we speak about a truly mature European market.Immaturity
Much has been written about financing being the most critical issue controlling industry growth. This is certainly true for the self-storage market, as most European operators are starving for cash to expand their businesses. Of course, not all countries are in the same situation. In the United Kingdom, where the industry began in 1980, equity and debt financing is easier to obtain than on the Continent. Self-storage started in different countries at different times, and it appears the more mature the market, the easier it is to secure financing.
But blaming a lack of proper financing on lenders alone isn’t entirely fair. It’s true that we need investors and bankers with guts and creative minds who are unafraid of change. It’s also true that financiers are like lemmings: If one goes, they all go! But doesn’t the same rule apply to operators jumping into the self-storage market? The proliferation of nonprofessional outfits has done nothing to further the cause of finance.
An unpleasant circumstance is unfolding in European countries with immature storage markets. The first facility is started by a daredevil with money; when his venture appears to be a success, a plethora of novices jump into the industry. As a result, many self-storage businesses are operated by amateurs unable to show good financial results. This news travels fast and widely, especially with bankers.
I don’t pretend to know if this is the case everywhere, but based on my experiences in France, Germany, Holland and Spain, I can say the majority of banks look at self-storage with extreme caution and hesitance. This is largely due to bad management by people who convert their empty real estate to a mini-storage, which they decide to operate themselves despite having no feel for the industry.
Self-storage is considered a trendy, fashionable investment in many countries, further encouraging amateurs to underestimate the difficulties of marketing, renting and keeping the facility clean and appealing. Let’s face it: Too many operators are 30 percent or more behind on their budgets. As long as that occurs, banks will be skittish and financing sporadically available.
Having made some constructive criticism, I don’t believe new storage owners should pack up and leave. Looking back at the last 10 years, which is the approximate age of the industry in Holland, it’s clear that self-storage is growing overall and will surely reach maturity somewhere in the future.
To make it successful, operators should make an effort to beat or realistically alter their budgets. It’s crucial to produce realistic financial plans for self-storage conversion, and more important to successfully predict the number of units that will rent at a certain price. When operators accept these standards, the industry will slowly realize a wider availability of capital.Franchise or Independence?
As the industry grows in Europe, it will become increasingly necessary to train employees as well as executives. Maybe the Federation of European Self Storage Associations has a role to play in this area. Being a member of a national association is a must for every operator. Membership means adhering to certain standards of professionalism—a difficult feat for some. Unfortunately, skills such as accounting can only be learned at school, and qualities such as a positive attitude and customer service can rarely be taught.
Many of those eager to join the industry are hesitant about going it alone. Sometimes their financiers prohibit them from becoming lone operators; sometimes it’s the hard work and marketing that scares them. Because capital remains the limiting factor to growth (at least for now), some larger operators have decided to make their expertise in self-storage available to third parties in the form of a franchise opportunity.
When working in a franchise situation, success is directly connected with professionalism. Of course, local expertise is also a factor. I once told an American investor that Holland is my backyard, and I happen to know where all the toys are! Knowing the local community is an advantage for this market; being a local expert without professional know-how, however, isn’t enough.Internet Marketing
Marketing and a willingness to work 24 hours a day are vital to self-storage success. In Europe, I’m seeing rapid changes in how to market a facility for maximum results. The old method of buying a big ad in the Yellow Pages doesn’t work anymore. Nowadays, smart companies spend a significant portion of their marketing money on the Internet, not only for advertising purposes, but to build their list of e-mail addresses.
Once they possess a large e-mail database, they can do direct marketing for a fraction of what they would have spent in the past, enabling them to substantially increase the frequency of direct mail. These days, even small Yellow Pages ads hardly seem worth the money. The big advertising battle of the future will be about top rankings on Internet search engines.Minimal Staff
Staffing costs can quickly run up an operator’s budget. For this reason, some operators elect not to maintain offices or any full-time staff at their facilities. In this case, most communication with prospects and tenants is done from corporate headquarters. Customers who are unfamiliar with the concept can watch short videos posted on a facility website. Tenants can still be required to physically sign the lease and other documents at the sites, but only by appointment. In such situations, one manager can handle three or more facilities, provided they are relatively close together. One duty not possible from headquarters is facility maintenance. My guess is new technology, such as kiosks, will soon make any other physical presence obsolete. To be equipped for such a future, facilities will need advanced security, such as individual unit alarms, CCTV surveillance and other safety features suitable for unmanned sites.A Bright Future
Yes, the industry is changing and growing. To ensure an overall brighter future, operators can benefit by noting their common major challenges and addressing them head on.
Paul Logchies was a founding member of the first self-storage facility in Amsterdam, in 1996. After buying and converting properties into self-storage facilities in France, Germany and Holland, he founded Safe Storage International BV, of which he is a principal and president. The company offers self-storage franchise opportunities. For more information, visit www.safestorage.nlor www.safestoragefranchise.nl.