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Aussie Self-Storage: Changes in the Australian Market

Dallas Dogger and Sam Kennard Comments

While the Australian self-storage industry has been affected by the global financial crisis, it has been mostly regional. Towns where unemployment has risen seem to be affected more than others, and there are sites that have defied the trend altogether.

After a peak in occupancy levels in 2007 and 2008, there has been a gradual, modest decline. Inquiry from new renters has dropped 10 percent to 20 percent, but seemed to have returned to just under the industry’s long-term averages.

The competitive climate has changed, though. Operators have dropped their prices, and consumers are certainly more cautious. The majority of properties have lower street rents than they did 12 months ago. However, price wars bottomed in March 2009. Now, we can just hope for stability. We don’t expect growth this year, and next year will also be a grind.

Lease-up for new facilities has continued roughly in line with expectations despite the softening economy. If anything, the properties serving more affluent neighborhoods seemed to have slowed more, while less affluent and middle-class areas are faring better. 

New Development

The global financial crisis has also impeded some proposed new-development sites. Lower valuations and loan-to-value ratios have necessitated additional equity from investors who may not have the capacity or appetite to put in more. This will inhibit growth in supply, and will help to ensure the industry doesn’t suffer painful imbalances. As always, there is some localized market over supply.

Industry suppliers have settled into a much slower pace than that of a year ago. Some report business is down by as much as 75 percent. There’s not the frenetic building activity seen in the past. Owners are cautious about new development, and some have found that financing has evaporated.

The major factor affecting self-storage suppliers in Australia has been difficulty in obtaining financing for capital works. Some banks now view self-storage as a riskier business than it was just a year ago. Capitalization rates have slipped, and potential investors are finding it increasingly difficult to make the numbers work. There are few sites changing hands.

On the positive side, for those who are able to obtain funds and wish to expand or renovate, there has never been a better time than now. Suppliers are more than willing to look at reduced margins to keep construction crews together and ride out the difficult times.

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