U.S. Self Storage Market Outpaces UK

Posted on May 26 2011 - 8:01am by John Stevens

While the self storage industry remains robust in the United States, it is foundering in the UK. This is mostly due to a slump in England’s housing market that in turn affects moving companies which are tightly knit to the self storage industry. The UK company, Big Yellow Self Storage, said recovery in the sector was unlikely until the economy improves, bringing its shares down three percent.

But while UK self storage companies struggle, U.S. self storage real estate investment trusts (REITs) are forecasting a two to three percent increase in same-store sales growth in 2011 and an even stronger increase in net operating income in 2011. 

Some analysts in the UK fear that high unemployment, negative real income growth, high debt levels and difficulties in obtaining credit will continue to affect the housing market and therefore be detrimental to self storage.

“In the UK, at the moment we’re operating in a very subdued environment, where the economy did not really do very much since September,” Big Yellow Chief Executive James Gibson said in an interview with Reuters.

Gibson said the current economic conditions had slowed down demand for the company, which generates much of its revenue from house movers.

“It is a flexible space product if you like…and that demand does have some dependency on activity in the economy,” Gibson said.

Affecting the house movers is the UK housing market which is bracing itself for more price falls after an unexpected slump in sales this spring thanks to economic uncertainty, prolonged good weather and the glut of bank holidays. The atmosphere surrounding the royal wedding has also sharply cut demand.

“The number of buyers has fallen even faster than the number of sellers and transaction volumes will therefore remain low,” Miles Shipside, commercial director of Britain’s largest property website Rightmove told The Guardian UK. “Agents usually see stock turn over more quickly during spring, but this year’s slower market suggests stock levels may exceed Rightmove’s previous record of 79 properties per branch over the next few months.”

UK house prices have dropped 1.5 percent since the New Year and are now 20 percent below the pre-downturn peak in the summer of 2007, according to Martin Ellis, housing economist at the Lloyds Banking Group and author of the monthly Halifax house price index.

Big Yellow, whose self storage stores are mainly in London and South-East England, plans to open three new stores this year and is on the lookout for site acquisitions in London. Shares in Big Yellow, whose peers include Safestore and Lok’n Store, were down 11.4 pence at 333 pence at 1015 GMT on the London Stock Exchange, making the stock the top percentage faller on the FTSE mid-cap index. One dollar equals 0.616 British pounds.

The fact that Americans have become a nation of renters and hoarders has kept the U.S. self storage industry robust, along with the apartment rental industry. The REITs that own apartments and self storage facilities are becoming Wall Street studs as more people are renting than buying. Downgrading from a house to an apartment or just choosing to rent over buying, translates into a need for self storage. The U.S. homeownership rate for those under the age of 35 is at a 16-year low. The decision to rent rather than buy is linked to the belief that housing prices haven’t yet hit bottom. But while the housing market struggles, rental vacancies fell to 9.7 percent in the first quarter of this year from 10.6 percent a year ago. Renting appears to have become the new American dream. And less space to store all the belongings Americans like to collect is a pretty good scenario for the self storage industry.

“Big Yellow Sees Slow Recovery in Muted Housing Market.” Reuters. May 24, 2011.

“Housing Slump? Blame the Weather.” Guardian.co.uk. May 23, 2011.

Hsiu, Winnie. “Investor Interest in Self Storage Niche Grows As Annual Returns Hold Strong.” Self Storage Industry News. April 14, 2011.

La Monica, Paul R. “Nation of Renters and Hoarders.” CNNMoney. April 27, 2011.