In comparison to the international self-storage market, the South African market is significantly underdeveloped. Approximately 120 facilities serve a population of 50 million, a significant underinvestment compared to more established markets such as the United States, Australia and Europe.
The industry began in the 1980s with industrial-type facilities located close to airports and in industrial nodes, or as an extension of an existing business. The low-cost buildings were typically poorly constructed without any consideration for retail aesthetics.
The storage market here has grown by approximately 40 percent annually for the last two years; national occupancy levels are estimated to be 95 percent, with rental revenues estimated at (U.S.) $31 million per annum. The total market size is likely in excess of (U.S.) $300 million. The industry growth is primarily driven by entrepreneurs who can take on the business risk. A significant portion of the growth has been organic growth from within the industry itself.
Self-storage in the nation is characterized by larger size units and inexpensive rental rates. Despite poor quality service and a lack of professionalism, many sites are operating at 100 percent occupancy. Accordingly, the current market perception is of “rows of garages.” Less than 20 percent of the facilities in South Africa are multi-level, and very few operators genuinely retail the product to the market. Only 8 percent of operators offer any form of ancillary products.
A number of small independent operators are scattered across the major cities. There is approximately .13 square feet of self-storage for every person in South Africa, compared to .42 in the United Kingdom, 1.1 in Australasia, and 6.86 square feet in the United States.
The sustained economic growth and one of the fastest middle-class growth sectors in the world, together with the recent residential property boom, is fuelling the growth of the industry. More specifically, the growth in gated security estates and high-cost smaller dwellings with little or no storage space, and the rapid urbanization of the previously disadvantaged is driving the industry forward.
We also see a unique situation here, with an unusually high number of expat middle-class South African’s working in foreign destinations. These expats typically still have “one foot” firmly planted in South Africa and their personal belongings safely packed for their return.
Demand is closely linked to the growth in the residential market, which has experienced phenomenal increases over the past decade. As first-time buyers entering the market have been faced with high prices, purchases of smaller dwellings with little or no storage space has increased.
There is currently no national industry trade association in South Africa. Moves are being made to create one, but many of operators are unwilling to share information. In addition, little research data exists, making bank financing and raising private capital or capital from the equity markets challenging. Funding from South Africa’s four major commercial banks has proven to be exceptionally difficult, but some of the private banks have shown more interest.
Customers typically rent South African self-storage because some life event has generated the need—moving overseas for employment, inheriting furniture, divorce or marriage, or a student storing belongings over summer vacation.
The balance of customers are commercial in nature, ranging from startups and market traders to retailers and larger multi-nationals storing stock, documents, equipment or promotional materials, all requiring a convenient flexible solution.
The South African industry is set for unprecedented growth via strong economic fundamentals that have been present over the last five years. The commercial property market is estimated to be around (U.S.) $70 billion. South Africa offers a combination of a highly developed, first-world economic and legal infrastructure alongside a vibrant, growing emerging market economy.
As Africa’s gateway, South Africa is the region’s economic powerhouse. This sets the stage for a huge opportunity in self-storage development over the next decade, including the emergence of a few dominant players in the local market willing to pursue large-scale developments and the acquisition of smaller operators in all the major towns and cities. ISS
Gavin Lucas is the founder and chief executive of the SASSI Self Storage Group. Internationally recognized for the research completed on the South African self-storage industry, Mr. Lucas was recently invited to speak at the 2008 Federation of European Self Storage Association’s Conference in Rome, where he shared insights into the workings of the South African self-storage industry. For more information, visit www.saselfstorageinvestments.com.