Since November 2007, Australian consumer confidence, housing starts and approvals along with commercial property have all shown a downward trend. Factors impacting the self-storage industry include declining REIT values, increasing steel and petrol prices and the tightening of financing coupled with 12-year-high interest rates.
The REIT Shakeout
The REIT market in Australia is worth A$83 billion. The ASX300 index stocks listed on Standard & Poor’s Australian Securities Exchange has suffered a 29 percent fall this year and 39 percent over the last 12 months.
A number of the largest A-REITs have suffered significant falls in value over the last six months, most notably General Property Trust, Valad Property Group and Centro Properties Group. With listed property trusts (LPTs) suffering declines in share values of upward of 45 percent recently, LPTs that have holdings in self-storage are selling.
At a recent meeting of APN Property Trust share holders, the decision was approved by 99 percent to conduct an “orderly” sale of its self-storage assets. APN cited the uncertain economic forecast, a desire to pay down debt and strengthen its balance sheet as reasons for selling. APN’s holdings include National Storage properties in most major Australian cities. National Storage purchased three sites in Hobart Tasmania from Scobies Storage in July.
Valad plans to sell 50 percent of its self-storage holdings to the Kennard Family for a reported $69 million. Valad purchased the Millers Group in 2004 for A$210 million, but now faces the same economic issues as APN. Valad needs to retire debt as part of its ongoing operations.
Australian self-storage saturation rate is about 25 percent of the United States, so it’s unclear how a downturn in the economy will affect local operators. Awareness of self-storage has increased with large sites in high-profile areas providing core exposure for the product.
Some larger operators have forged ahead with rent increases, which have helped their bottom lines. But a number of self-storage operators—large and small—have reported a decrease in general inquiry levels for storage spaces, although few have reported a loss in occupancy. While the move-ins might have slowed for some, so have the move-outs.
Interest rates in Australia have been on the increase with nine rises over a seven-year period. In early September, the Reserve Bank of Australia loosened the reins with a 25-basis point, its first cut in nearly seven years.