The past two years have been tumultuous for the residents of Canada as we navigate the aftereffects of the coronavirus pandemic and re-enter an inflationary economy. However, the self-storage asset class has proven its resiliency, remaining stable through all volatility. The industry here is being driven by key market fundamentals including urbanization, increasing immigration, a surge in the aging population and a lack of new housing development. The business continues to grow, even in the face of new challenges.
Our company, Make Space Storage, offers traditional self-storage rentals, portable storage, boat and RV parking, and containerized storage solutions. In the last two years, we’ve grown from two locations to more than 25, with $180 million in assets under management. With 20 years of experience in the business, we’ve seen significant changes and remain optimistic about the industry’s potential. Following are some observations of today’s market.
Higher Demand, Lower Supply
In recent years, the Canadian self-storage market saw a significant increase in demand, both in previously underserved markets and on a new-customer basis. We witnessed this firsthand within the secondary and tertiary markets in which we currently operate. There are a few reasons for the spike:
- A significant portion of the population relocated from urban areas to suburban neighborhoods, using storage during their transition.
- Some businesses downsized to rid themselves of expensive office space, thereby needing a place to store inventory and other goods.
- As a direct result of global supply-line issues, some commercial customers downsized to storage from larger warehouse space.
- Many people used storage while completing home or business renovations and construction.
The housing market is another major contributor to the increase in self-storage demand. The federal government has set high immigration targets, and yet there’s been a sluggish response from municipalities in providing zoning approval for new housing developments. This is pushing up pricing, which results in smaller living spaces with little or no storage.
With demand for self-storage so high, the supply line can’t keep pace. In fact, demand has outstripped supply in primary Canadian markets like Toronto and Vancouver for many years. This is where you find most new projects, as institutional capital follows population and economic growth; however, local governments continue to restrict zoning that permits self-storage. Add to that the already persistent challenge of supply-chain disruption, and we can expect to see delays in new supply coming to market.
A Fierce Acquisition Market
With continuously rising interest rates, property values are going down. Naturally, self-storage owners are less willing to part with their facilities at lower market prices, which means less inventory on the market. Companies with an eye to acquire are also being faced with more stringent demands from lenders.
Canada has a fragmented self-storage ownership profile. While the industry was previously comprised of many mom-and-pop owners, some have sold or are looking to sell their facilities to larger groups that can pay more. Combined with the challenges mentioned above, this results in a highly competitive market for acquisition growth among the major operators.
To be successful, Canadian self-storage operators should keep an eye on the market to anticipate shifts and be prepared to adjust accordingly. There could be new challenges ahead. For example, rising costs of living may negatively impact households and businesses and lead to lower occupancy. As construction and renovation projects are delayed or put on hold, there may be less of a need for storage. It’ll also be interesting to see if investors will pay an adjusted price for facilities with lower expected returns or sellers will adjust their expectations.
In this environment, it’s vital that self-storage operators retain their current customers and increase their market share to drive new business. At Make Space, we’ve diversified our product range, offering multiple types of storage to meet expanding customer needs. We’ve also embraced technology to shift to contactless and online rental processes. We feel confident that our agility and a willingness to pivot will see us through any obstacles that come our way.
Danny Freedman is vice president of corporate development for Make Space Inc., which operates more than 25 Canadian self-storage facilities. He focuses on capital raise, business development and strategic partnerships. In the storage industry since 2005, he’s a key asset in reviewing the company’s acquisition pipeline. To reach him, email [email protected].
In the self-storage industry since 2004, Vaughan Kooyman is director of Make Space, where he leads the acquisition team in actively managing and sourcing deals of all types, from newly developed assets to distressed properties. He also oversees onboarding of acquisitions to the operations team. He can be reached at [email protected].