Self-storage construction is still ogoing, but at a reduced pace. With interest rates increasing along with the credit crunch, a number of projects have been shelved, on hold or scaled back. Some builders have reported it is more difficult to establish a feasibility stage for projects. Uncertainty about future growth combined with an escalation of land and building costs has made the prospect of entry into self-storage questionable for some.
Ken Elliott of StorBuild Australia commented that the increase in steel prices and transport costs have certainly affected the economics of buildings. This trend is not likely to stop as price rises for steel are still forecast to outstrip inflation.
Self-storage is being affected by the continuing increases in steel prices. Some building contracts have been impacted by the increases as suppliers initiate price clauses based on the rise and fall of steel prices. Australia’s two largest steel producers, BlueScope Steel and OneSteel, predict demand and prices for steel to remain high. One large steel supplier increased prices by 17 percent in July, and another 10 percent in August.
Impacts on Development
Self-storage rates in some markets, particularly in regional centers, have not kept up with the pace of development costs. Commercial land in Australia has escalated in cost far in excess of inflation.
This discourages large sites to be built in certain areas, which underpins the supply market. In some regional areas, land costs are close to city properties, but without rural facilities being able to charge the corresponding rental rates.
Recent actions by truck owners and drivers could also result in increases in commodity costs. As the price of petrol escalated, drivers claimed they are unable to pay their bills. In one week more than 2,500 commercial trucks were repossessed by finance companies. Drivers have been holding blockades of central business district politicians’ offices in an effort to get their grievances heard. They are demanding a rate-per-hour rather than the current load-based pay method. Although the price of petrol has dropped slightly since then, consumer confidence is slow to rise.
There will always be the need for self-storage in emerging Australian markets, but its success lies in how developers deals effectively with these challenges.
Dallas Dogger is CEO of Centreforce IT in Brisbane, Australia. Centreforce IT is the largest installer of access control, CCTV and individual door-alarm systems in Australasia. For more information, visit www.centreforceit.com.au.