Petrol and Steel Prices Slow Australian Self-Storage

High-priced petrol and steel are slowing the Australian self-storage market.

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.

Local Operators

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.

Money Crunch

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.

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.  

Petrol Woes

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

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