At the 2003 Inside Self-Storage Expo in Las Vegas, three U.S. self-storage veterans discussed their perspectives on the growing self-storage market in the United Kingdom and Europe. In a unique International Business Forum, Ken Nitzberg, chairman and CEO of Devon Self Storage, Jim Chiswell, president of Chiswell & Associates LLC, and Ray Wilson, president of Charles R. Wilson & Associates, provided insight to this entrepreneurial frontier. Following are excerpts from the informational exchange.
Comments From Nitzberg
Self-storage in Western Europe and the United Kingdom is a fascinating opportunity. It's like you can start over, after 30 years of business in the United States, with today's knowledge and capital.
There are some 350 million people served by approximately 500 facilities in the United Kingdom and Europe. The issues over there are different than in the United States. Probably the biggest difference is the European public doesn't know what self-storage is. They don't know how to find it or how to use it. You have to first educate your market about the self-storage product.
When we open a site in the United States, we typically budget about $3,000 a month for advertising, of which 98 percent is for Yellow Pages. In Europe, we budgeted $10,000 a month for the first two years. The first year, we tried everything--the Yellow Pages, TV, newspapers, fliers, radio and trolley cars. Our facility leased very slowly until we hit about 30 percent, then the line went vertical. And it all came from referrals. In the second year, we only advertised in the Yellow Pages and have not spent a dime more since.
In terms of leases, lien laws and insurance, the culture differences and approaches to renting a unit are huge. We have leases in five or six languages. The Dutch look at the lease for 30 seconds, sign it and move in. In Germany, customers take the lease home to read it. They highlight sections and ask you questions for three weeks before moving in. The French make several visits, drinking coffee each time, before taking the lease home. Three weeks later, they sign it.
To the best of our knowledge, in the countries where we operate, there are no lien laws. In France, Germany and Holland, there is no legal way to sell the goods of a defaulted customer and release the unit. In Holland, we use bill collectors. You have to decide how aggressive you want to be. Some operators give goods away to charity, some throw them away and some store them. But there is no legal way, so it is a problem.
The insurance issue is very similar. We don't have insurance for things like wrongful sale of a customer's goods because you're not supposed to sell them. Other than that, insurance price and coverage are very similar.
When Devon considers opening a new facility in Europe, we do conversions. Getting a piece of raw land in a desirable location for self-storage is exceptionally difficult. Then getting permits is almost impossible. Regulatory agencies have no rules for self-storage construction because they don't know the product. However, it's relatively easy to get permits to modify an existing building. All you're doing is gutting the building and putting in your units. However, agencies are strict about fire codes, and all buildings must have sprinklers.
Our sites in Europe are not climate-controlled because it doesn't get hot enough. It gets warm in Southern France, where we have a facility, but we don't cool the building. Since we don't have competition in that area, climate control isn't a marketing advantage. Our facilities in Germany and Holland are heated. The winters are very cold, and without heat, the pipes will burst.
Sites tend to lease up slower if you're the first facility in the market. If there are already five or 10 sites, you'll lease up as quickly as you would in the United States.
Comments From Chiswell
The same problems self-storage developers face in the United States exist in Europe. Just because there aren't a lot of stores in Europe doesn't mean it's any easier to develop, to get approval and to rent up. While I am not yet convinced the market will be as deep as it is in many U.S. metro areas, the number of stores could easily triple during the next five to 10 years.
Obviously, the financial institutions need to accept the industry as U.S. bankers do. The lack of access to capital has contributed significantly to the fact the majority of the established stores are in the hands of large, publicly traded companies. This is just the opposite in the United States, where entrepreneurs own the majority of the industry's stores. This trend will start to balance out as access to capital for this real estate asset type gains wider acceptance by the European and U.K. financial communities.
Right now, five or six companies serve the majority of Great Britain in addition to the U.S. ones. Because many of the storage companies are fairly large, they are publicly traded in Great Britain. It is possible to invest in self-storage in Britain and Europe by purchasing shares of stock instead of finding a local partner. If you have considerable funds to invest, you can ask an established U.S. company about its activities.
Another factor that will further enhance the self-storage industry is a growing trend for residential moves to be carried out as do-it-yourself projects, not by removalists. Removalists currently account for more than 70 percent of the residential moves in the United Kingdom. They obviously want to capture the storage side of any move.
Aggressive marketing by all operators across the United Kingdom and within selected metro areas in Europe benefits all existing and future stores. Customer awareness will further increase demand. The stores in London I visited last year are at the standards of most of the modern U.S. facilities. I am also impressed by the quality of the managers. Clearly, U.K. owners recognize quality customer service must be a hallmark for their stores.
A final factor is the development of an exit strategy. Until there are buyers willing to purchase established stores, the full return on investment cannot be realized. We will begin to quickly see this as the success of the larger companies is recognized with the real estate investment community in United Kingdom and Europe.
Comments From Wilson
About five years ago, I was hired by the Self Storage Association to explain the concept of self-storage to Europeans. We did this the same way we did in Australia--through seminars.
There is concern about oversupply of facilities in the United States. This occurred over the past 30 years when too much construction money was available too quickly and the supply surpassed the demand curve. In Europe and the United Kingdom, people are just learning about self-storage. But it's not going to take them 30 years like is has in the United States. They're going to catch on much faster. The trick is just not to build too much supply too quickly.
Ken Nitzberg is the chairman and CEO of Devon Self Storage Holdings LLC, which he co-founded in 1988. The company manages in excess of $150 million of investor capital in 20 facilities in the United States and eight in Europe. For more information, visit www.devonselfstorage.com.
Jim Chiswell is the president of Chiswell & Associates LLC, which has provided feasibility studies, acquisition due diligence and customized manager training for the self-storage industry since 1990. In addition to contributing regularly to Inside Self-Storage, Mr. Chiswell is a frequent speaker at Inside Self-Storage Expos and various national and state association meetings. For more information, visit www.selfstorageconsulting.com.
Ray Wilson is president of Charles R. Wilson & Associates Inc., an appraisal company that specializes in the valuation of self-storage facilities. He is also owner of Self Storage Data Services Inc., a research company that maintains a database of operating statistics on thousands of facilities across the United States. For more information, visit www.crwilson.com.