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Big Growth and Investor Interest Imminent for Australian Self-Storage

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By Sam Kennards

The Australian self-storage market is about to see its biggest surge in new facility development in more than 10 years, specifically in the major eastern-seaboard markets of Brisbane, Melbourne and Sydney. Urbis, a consulting firm with a self-storage specialist division, estimates there are 20 confirmed new projects. Once complete, they’ll increase the industry supply by approximately 6 percent. However, it’s likely this will prove to be an underestimate.

The combined population of these three cities is 11.5 million. It’s estimated Sydney will pass 5 million in April 2016. Already one of the most urbanized countries in the world, Australia is becoming even more densely populated, with its cities getting bigger. This is proving to be a positive driver for self-storage occupancies and a catalyst for new building.

Real estate asset prices are increasing in every property sector, underpinned by low interest rates and an abundance of investor interest. Led by the Chinese, Asian investors are finding Australian property extremely attractive. Self-storage entrepreneurs have entered the market and joined established operators to develop facilities from coast to coast. In addition, lender funding is also more accessible for new projects.

Kennards in Rydalmere, New South Wales, AustraliaAll of this means a surge in self-storage investment and development. There are three major operators in Australia, and each is pursuing expansion to different degrees.

Abacus Property Group

Abacus is a diversified real estate investment trust (REIT) with a market cap of $1.7 billion. Self-storage investments represent 31 percent of the company’s asset values.

Abacus has 54 self-storage properties with a valuation of $457.2 million. The operator opened four new properties in the last year, adding 13,000 square meters (140,000 square feet), bringing its portfolio to 254,000 square meters (2.8 million square feet). Its portfolio averaged 84.9 percent occupancy over the last 12 months.

National Storage REIT (NSR)

NSR has been very acquisitive since its initial public offering in December 2013. It has added 21 storage properties in the last 12 months and now boasts 87 facilities across Australia and New Zealand in a blend of ownership, joint ventures, leasehold or management.

In its recent annual earnings results, NSR disclosed it now owns and leases $500 million in self-storage property in Australia, with 304,000 square meters (3.3 million square feet) across 54 properties. The total portfolio exceeds 443,000 square meters (4.8 million square feet). Same-store occupancy remains at 71 percent, while the group average is 72 percent.

In a new strategy, NSR has started two development funds. One is focused in the western city of Perth while the other has a country-wide mandate. These funds will acquire and develop self-storage properties for later acquisition by NSR. Both funds are off balance sheet, outside the REIT. This quarantines the earning performance and property-development risk of new developments.

Kennards Self-Storage Facilities by Region***Kennards Self Storage

Kennards is a privately owned self-storage owner and manager with 83 properties. The company’s total net leasable area exceeds 535,000 square meters (5.9 million square feet), and its assets total more than $1.15 billion across Australia and New Zealand. Kennards is primarily focused on growing through new development, with six projects in the pipeline.

Analysis, Institutions and Observers

In its recent study, Urbis identified 20 new self-storage projects that are significantly advanced. It estimates they will add 10,071 new storage units to Australia’s East Coast markets. The sector has also seen growing interest from large institutional investors. Superannuation funds and institutional REITs now see the asset class as a worthy investment for income diversification. However, to date, this interest has not materialized into a significant new direct investment in the industry.

The listing of NSR has also elevated the sector in the eyes of investors. Morgan Stanley and Macquarie Group now track NSR, offering research papers and commentary into the REIT and its sector.

The Australian self-storage market has matured greatly in the last couple of years. This is clearly illustrated by the strong investor interest in the REITs as well as the observable interest from a variety of other investor groups. Australia is still considered small, with a population of 23 million, so the depth of market will be relatively modest.

Sam Kennards is managing director of Kennards Self Storage. Founded in 1973, Kennards has 83 locations across Australia and New Zealand, with more than 53.5 hectares of space. The company remains a private, family-owned and -operated business. For more information, visit www.kss.com.au.

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