Without a doubt, there are fantastic opportunities for self-storage in Europe. The comparisons with the United States are often touted as a justification for this conclusion. The most well-known of those comparative figures is the United States has about 4 square feet to 5 square feet of self-storage per capita vs. 0.1 or fewer square feet per capita across Europe. The figure in the Australian market is about 1 square foot per person.
The other encouraging statistic for the European opportunity is the U.K. market reportedly grew at about 35 percent per year for the four or five years up to 2001. However, it should be recognized this growth was achieved from a small base, so it is hard to conclude a great deal from this alone.
Growth in the U.K. selfstorage market has slowed to only 10 percent over the last year. The French market appears to be even less buoyant, with little new activity over the last 12 months. No doubt, there are several macroeconomic factors contributing to this phenomenon. All other national markets in Europe are too early in their development to form reliable statistics.
Nonetheless, we are starting to hear less sanguine theories concerning the European self-storage opportunity. This is encouraging a healthy and more interesting debate about the future for the industry here. Those involved in self-storage are through the “blind euphoria” stage and are thinking more maturely about the industry’s future. But we all have a long way to go. Growth will involve a process of developing our fact base, along with views and theories. In other words, it’s all new ground, and nobody has a monopoly on the answers.
Executives in publicly quoted European self-storage companies feel pressure from investors more than most. These executives are talking about “slowing growth” and “periods of consolidation.” Jonathan Duck, chief executive of Access Storage Solutions, one of the United Kingdom’s largest self-storage providers, raised the question of whether the public markets would ever value self-storage businesses at greater-than-net asset value.
There is a real lack of understanding about the self-storage business in the investment community—and more particularly the public capital markets. The tendency is to look at self-storage as predominantly a property play, which leads to valuations approaching net-asset value.
This raises another interesting point of whether the self-storage business is more suited to private or public investment. In the United States, the industry is highly fragmented, being dominated by the smaller private investors, with only 12 percent of facilities (20 percent of rentable space) controlled by the top 10 players. The market started here in a different fashion, with the top seven European companies controlling 44 percent of the facilities. The more conservative industry pundits are asking a number of probing questions about the future of the industry in Europe. These are important issues for debate:
- Why has the European self-storage market been so slow to develop, given the product has been available for more than 30 years in the United States?
- Does the U.S. self-storage business model work the same in Europe, or do higher property prices impact development opportunities? Are property prices, in fact, different than those in the United States?
The Pace of the Market
Self-storage facilities have existed in the United Kingdom since the 1980s. Over the last seven or eight years, the market has grown substantially, going from 100 to 350 facilities in a five-year period.
But then there is still the question of why the European market in general has not grown faster. There are various theories about this, usually culturally based. For example, Italians are used to living in small spaces, do not accumulate goods and are too parsimonious to spend money on self-storage. German houses are usually built with large cellars, eliminating the need for extra storage. However, there is clearly growing interest in self-storage in those markets, as demonstrated by the construction of facilities in both countries. But it is true the terrific potential of these markets is yet to be proven.
The Impact of Property Prices
Is there anything different about the European market that explains a conservative growth rate? Duck points to the relatively high European property prices as being a significant factor. His observations on the U.S. market are that self-storage has done best in areas where space is ample and property is cheap. For example, Montana has the highest penetration level at 10.8 square feet per capita, while Rhode Island and Connecticut are among the lowest, at 1.6 and 1.9 square feet per capita respectively. The argument goes that if European property prices are relatively more expensive than in the United States, self-storage saturation will be reached much earlier in Europe.
What Drives Demand?
The argument about high property prices is a compelling one. It seems to apply particularly well to large European cities. However, ironically, that is where we see the vast majority of the operators’ interest in developing facilities.
In the United Kingdom, the industry is dramatically skewed toward the London area. For example, while the greater London area might account for only about 20 percent of the country’s population, 72 percent of Access’ U.K. stores, 55 percent of Big Yellow’s U.K. stores (including three opening soon) and 53 percent of Spaces’ U.K. stores are in London. In Italy, the vast majority of inquiries we receive relate to Rome or Milan. In Spain, customers inquire about facilities in Barcelona or Madrid.
The conventional wisdom of almost all operators is self-storage works best in densely populated areas where space is constrained and is, therefore, at a premium. The implication is demand is driven by the need for room, which is highest where people are living in small quarters.
But is that the real driver of self-storage demand, and is that what U.S. figures are telling us? How small are the houses in Montana? The population of Europe is spread out geographically, and the provincial areas have not had the attention they deserve from self-storage operators. The property price argument is valid, but there is untapped potential for self-storage operators in the provincial areas of Europe. There are many different drivers of self-storage, and the topic is too complex to do it justice in this article.
A Statistical View on Growth
Many industry executives predict a rosy outlook for the European market. However, realism about the industry’s future would help the industry develop in a more orderly, predictable and better fashion. We all have the opportunity to contribute to the shape of the industry in Europe and to learn from the U.S. and Australian markets.
Although we need to keep focus on the here and now, it is still interesting to think about how far the European self-storage market will grow. Just to daydream on the numbers for a moment—if the U.K. market were to grow at 20 percent per year for the next 10 years, there would be more than 2,500 facilities by 2012. By my calculations, the U.S. market grew by 6 percent to 7 percent in 2002, even in its relatively mature state.
At an average facility size of about 30,000 square feet of rentable space, this growth would imply a penetration level of 1.2 to 1.3 square feet of self-storage per head of U.K. population. That would be only 25 percent of the current U.S. penetration level and about equal to the current Australian penetration level.
The Australian market is about 15 years old, and so it is probably not a bad analogue to the position of the European market in 2012. Extrapolating those U.K. figures to the rest of Europe would imply there could be as many as 10,000 facilities in Europe by 2012. Is that realistic? You decide.
Michael Homan is general manager of the Steel Storage Group Europe, which specializes in self-storage construction. The company manufactures door and partitioning systems and provides full turnkey services in developing self-storage facilities. The Steel Storage Group has more than 10 years of experience building self-storage facilities in Asia, Australia and Europe. PTI Europe and PTI Australia are group companies and are the exclusive distributors of PTI access control systems in Asia, Australia and Europe. For more information, visit www.steelstorage.co.uk.