By Pavel Matveev

The self-storage industry in Russia has recently picked up as economic conditions improve. The first facility opened in Moscow in 2007 but closed after the downturn of the world economy in 2008, which stifled all new developments. However, since 2009, interest in self-storage development has returned to the market.

Several players have entered the Russian self-storage market in a short period of time. Mobius, Skladovka and Vashstorage all recently opened facilities in Moscow and St. Petersburg. Skladovka is the only of the three to develop facilities from scratch. Mobius offers mobile self-storage units, while Vashstorage rents existing warehouses by reorganizing the spaces with mezzanine and partitioning systems.

The leading operator in Moscow is Skladovka, with seven facilities currently renting or being finalized. Unlike its competitors, the company is developing new facilities under western standards instead of renovating existing buildings. Most new facilities in Moscow use mezzanine partitioning in warehouse-like buildings. Developers prefer not to build facilities with multiple floors because it takes significantly more time and makes the process more complicated.

All facilities in Russia are heated and have 24-hour security personnel onsite. Most consumers would never consider leaving their belongings at a facility that didnt have ample security or lacked home-like conditions for storage. Along with Russias cold climate, these factors place financial pressure on operators to offer heated units and invest in security.

Industry Challenges

The major challenge for self-storage development in Russia is the bureaucracy of local authorities. The average investment cycle (time from project initiation until the facility is opened) is around two and a half years. Of this, about six months is spent on actual construction, with the rest of the time devoted to obtaining hundreds of various permits.

Other barriers to entry are the cost of construction and the availability of utilities near development sites. A new facility can be built for roughly $3 to $3.5 million, not including land, which should be estimated at no less than $500 per square meter. Central heating and electricity can cost another $1 million.

Consumer awareness of self-storage is also low among people living in major cities. It will take some time before the industry becomes known to a wider population and people begin to trust self-storage operators with their belongings.

Its also worth noting that Russia is very diverse in terms of income per capita. Moscow citizens have the highest personal income, earning an average of $21,000 per year. Saint Petersburg workers are second, while those in most other cities make significantly less.

Perspectives

Despite the self-storage industry's early troubles, its future is very bright. As people learn more about the availability of this service, self-storage will become more popular. In terms of development, its estimated Moscow alone needs at least 30 more facilities in the nearest future to satisfy the growing demand.

Unlike many western populations, most Russians live in small apartments (40 to 80 square meters), and the population density in major Russian cities is very high. Moscow, for example, is rated the second-most densely populated city in Europe. These facts suggest the trend toward out-of-home storage is here to stay.

Expansion to other regions will start soon as the nations economic situation stabilizes and personal income improves. However, lease rates in newly developed municipalities will probably remain significantly lower than in Moscow or St. Petersburg.

The significant growth potential of the market means self-storage facilities are expected to become the asset of choice for institutional investors in Russia. The only obstacles keeping them from investing now is the lack of a positive track record and overall statistics.

Russia Self-Storage at a Glance

Pavel Matveev is the general director of Sklad-Activ, a company developing self-storage facilities in Russia. He began working with self-storage operator Skladovka in 2009. Previously, he was an investment vice president for a private equity fund. To reach him, e-mail [email protected] .