Market
The self storage market has been growing consistently for over 20 years across many European countries but few regions offer the unique characteristics of London and Paris, both of which consist of large, wealthy and densely populated markets. In the London region, the population is 13 million inhabitants with a density of 5,200 inhabitants per square mile, 11,000 per square mile in Central London and up to 32,000 per square mile in the densest boroughs.
The population of the Paris urban area is 10.7 million inhabitants with a density of 9,300 inhabitants per square mile in the urban area but 54,000 per square mile in the City of Paris and first belt, where 69% of our French stores are located and which has one of the highest population densities in the western world. 85% of the Paris region population live in central parts of the city versus the rest of the urban area, which compares with 60% in the London region. There are currently c.245 storage centres within the M25 as compared to only c.95 in the Paris urban area.
In addition, barriers to entry in these two important city markets are high, due to land values and limited availability of sites as well as planning regulation. This is the case for Paris and its first belt in particular, which inhibits new development possibilities.
Our combined operations in London and Paris, with 78 stores, contributed £113.2 million of revenue and £82.3 million of store EBITDA for the financial year and offer a unique exposure to the two most attractive European self storage markets.
We have a strong position in both the UK and Paris markets, operating 130 stores in the UK, 72 of which are in London and the South East, and 29 stores in Paris.
In the UK, 62% of our revenue is generated by our stores in London and the South East. On average, our stores in London and the South East are smaller than in the rest of the UK but the rental rates achieved are materially higher, enabling these stores to typically achieve similar or better margins than the larger stores. In London we operate 49 stores within the M25, more than any other competitor.
In France, we have a leading position in the heart of the affluent City of Paris market with ten stores branded as Une Pièce en Plus (“UPP”) (“A spare room”). Over 60% of the UPP stores are located in a cluster within a five-mile radius of the city centre, which facilitates strong operational and marketing synergies as well as options to differentiate and channel customers to the right store subject to their preference for convenience or price affordability. The Parisian market has attractive socio-demographic characteristics for self storage and we believe that UPP enjoys unique strategic strength in such an attractive market.
As at 31 October 2022, 70% of our Group Revenue, 65% of our stores and 58% of our available capacity are in London, South East England, Paris, Amsterdam and the Randstad area, Brussels and Barcelona. These major population areas deliver 71% of the Group’s store EBITDA from 62% of our MLA, highlighting the attractiveness of being present in these major cities and conurbations. The current pipeline includes 26 further developments in these areas which will increase the number of stores to 68% of our portfolio.
In addition, Safestore has the benefit of a leading national presence in the UK regions where the stores are predominantly located in the centre of key metropolitan areas such as Birmingham, Manchester, Liverpool, Bristol, Newcastle, Glasgow and Edinburgh. Our 2019 acquisition of OMB in Barcelona and our 2022 Benelux JV acquisition represents a platform into the Spanish, Netherlands and Belgium markets where we hope to take advantage of further development and acquisition opportunities.
The Self Storage Association (“SSA”) noted in its May 2022 report that, “despite two record years, inflationary pressures, escalating costs of construction and a war in Europe, operators remain optimistic about the future.”. Previous downturns have presented opportunities for self storage and the pandemic seems to have once again demonstrated the resilience of the self storage industry and the broad range of demand drivers.
The self storage market in the UK, France, Spain and Benelux remains relatively immature compared to geographies such as the USA and Australia. The SSA Annual Survey (May 2022) confirmed that self storage capacity stands at 0.76 sq ft per head of population in the UK. The most recent report relating to Europe (FEDESSA’s 2022 report) showed that capacity in France is 0.24 sq ft per capita. Whilst the Paris market density is greater than France, we estimate it to be significantly lower than the UK at around 0.4 sq ft per inhabitant. This compares with closer to 10 sq ft per inhabitant in the USA and 2 sq ft in Australia. In the UK, in order to reach the US density of supply, it would require the addition of around another 17,000 stores as compared to c.1,400 currently. In the Paris region, it would require around 2,400 new facilities versus c.95 currently opened.
In Spain, the Netherlands and Belgium, geographies the Group has recently entered, penetration is similarly low. In Spain capacity is around 0.24 sq ft per head of population and the consumer is serviced by just 580 stores. In the Netherlands penetration is 0.6 sq ft per head of population (355 stores) and in Belgium 0.2 sq ft per head of population (101 stores).
The Group recently entered a JV with Carlyle in Germany. The German market is one of Europe’s more under-penetrated markets with just 0.09 sq ft of storage space per capita and, according to the 2022 FEDESSA report, there are just 320 facilities in the country and 7.6m sq ft of lettable space.
Our interpretation of the most recent 2022 SSA report is that similar levels of capacity are likely to be developed in 2022 and 2023 at around 30-40 stores per annum. We do not consider this level of new supply growth to be of concern.
The 30-40 comparable sites represent between 2% and 3% of the traditional self storage industry in the UK. These figures represent gross openings and do not take into account storage facilities closing or being converted for alternative uses. We estimate that only a small proportion of these sites compete with existing Safestore stores.
New supply in London and Paris is likely to continue to be limited in the short and medium term as a result of planning restrictions, competition from a variety of other uses and the availability of suitable land.
The supply in the UK market, according to the SSA Survey, remains relatively fragmented despite a number of acquisitions in the sector in the last four years. The SSA’s estimates of the scale of the UK industry are finessed each year and changes from one year to the next represent improved data rather than new supply. In the 2022 report the SSA estimates that 2,050 self storage facilities exist in the UK market including around 621 container-based operations. According to the 2022 survey, Safestore is the industry leader by number of stores with 130 wholly owned sites followed by Big Yellow with 105 stores (including Armadillo), Access with 60 stores, Shurgard with 40 stores, Lok’n Store with 39 stores, Storage King with 37 stores and Ready Steady Store with 27 stores. In aggregate, the top seven leading operators account for almost 21% of the UK store portfolio. The remaining c.1,613 self storage outlets (including 621 container-based operations) are independently owned in small chains or single units. In total there are 1,015 storage brands operating in the UK.
Safestore’s French business, UPP, is mainly present in the core wealthier and more densely populated inner Paris and first belt areas, whereas our two main competitors, Shurgard and Homebox, have a greater presence in the outskirts and second belt of Paris.
Our Spanish business operates in Barcelona and has a pipeline of future store openings in both Barcelona and Madrid. The metropolitan areas of Barcelona and Madrid have combined growing high-density populations of twelve million inhabitants and significant barriers to entry.
Consumer awareness of self storage is increasing but remains relatively low, providing an opportunity for future industry growth. The SSA survey consistently indicates that approximately half of consumers either knew nothing about the service offered by self storage operators or had not heard of self storage at all. Since 2016, this statistic has only fallen 10ppts from 59%. Therefore, the opportunity to grow awareness, combined with limited new industry supply, makes for an attractive industry backdrop.
Self storage is a brand-blind product. 64% of respondents were unable to name a self storage business in their local area (56% in 2021). The lack of relevance of brand in the process of purchasing a self storage product emphasises the need for operators to have a strong online presence. This requirement for a strong online presence was also reiterated by the SSA Survey where 73% of those surveyed (77% in 2021) confirmed that an internet search would be their chosen means of finding a self storage unit to contact, whilst knowledge of a physical location of a store as reason for enquiry was only c.26% of respondents (c.25% in 2021).
There are numerous drivers of self storage growth. Most private and business customers need storage either temporarily or permanently for different reasons at any point in the economic cycle, resulting in a market depth that is, in our view, the reason for its exceptional resilience. The growth of the market is driven both by the fluctuation of economic conditions, which has an impact on the mix of demand, and by growing awareness of the product.
Safestore’s domestic customers’ need for storage is often driven by life events such as births, marriages, bereavements, divorces or by the housing market including house moves and developments and moves between rental properties. Safestore has estimated that UK owner-occupied housing transactions drive around 8-13% of the Group’s new lets.
The Group’s business customer base includes a range of businesses from start-up online retailers through to multi-national corporates utilising our national coverage to store in multiple locations while maintaining flexibility in their cost base.
Safestore’s customer base is resilient and diverse and consists of around 90,000 domestic, business and National Accounts customers across London, Paris, Spain, the UK regions, the Netherlands and Belgium.