Summer is here and, as a self-storage operator, you should be enjoying some of your best months of the year. This is the season when our residential customers are the most prolific.
This summer, in Ireland, Italy, Spain, the United Kingdom and other countries, business could be as blistering as ever due to the potentially overheated housing market. How long will the United Kingdom’s annual, double-digit growth in housing prices continue? Just where will it end? Will the boom persist, or is the bust around the corner? Dare I predict what even economists cannot agree on?
In the United Kingdom and Europe, the majority of self-storage customers are residential. House movers probably account for 50 percent of the entire market; and outside London and major European cities, the “lifestyle” customer is pretty much nonexistent. If half of the U.K. self-storage marketplace is those moving from home to home, it’s scary to think people are getting nervous about over-inflated property values. The average European is heavily in debt; and why not? Debt is cheap at the moment. Interest rates are low, but for how much longer?
There is a huge external influence about to unbalance the finely weighted scales of Europe’s interest rates and debt burden: a China crisis. The sleeping dragon has risen from its slumber and my, oh, my, is it hungry! It’s hungry for steel, oil, coal—it’s even hungry for Manchester United.
In fact, it’s not just hungry, it’s starving; and the only food available to curb its insatiable appetite is our raw materials. Because China is consuming everything it can get its jaws around, it’s driving prices up—not just a little but a lot. It needs 20 percent of the world’s steel supply; so the price of steel has already gone up 20 percent this year, with every other commodity in hot pursuit.
Such huge, raw price increases cannot fail to have an impact on the low-inflation Euro economy; and, like any aggressive competitor in a new marketplace, China will continue to buy market share. It has a competitive advantage in cheap labor. But until it reaches a satisfactory market share—probably at the same time its labor force demands more money—the rest of us are going to suffer.
Our biggest pain will be in the area of interest rates. Predictions made at the beginning of the year for a 1 percent increase by year end will soon change to 2 percent and possibly higher. This could lead to a crash in the housing market, which will affect 50 percent of our self-storage customer base. If housing goes back to the early ‘90s-style recession, next year could be a stinker for our residential market. I hope my prediction is wrong, for all of our sakes.
Andrew Donaldson is the founder and chief executive of Active Supply & Design (CDM) Ltd., a European fit-out contractor. He has set up and sold a multi-site chain of facilities in the United Kingdom under the name Rent-A-Space Ltd. His most recent facility, Storage World, in Manchester, England, has more than 100,000 square feet of rentable space. Mr. Donaldson is also the founder of the Self-Storage Sentinel newsletter and www.askactive.com. For more information, e-mail [email protected].