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Is Self Storage Overbuilding Imminent in Australia? A Prominent Operator Examines the Market

Despite high property prices, new self storage projects continue to spring up across Australia. The managing director of the Kennards Self Storage brand questions whether overbuilding is on the horizon and offers a performance overview of existing operations.

Kennards Self Storage Rydalmere, NSW

Despite high property prices, new self-storage projects continue to spring up across Australia. The entrepreneurial spirit is high “down under,” with many established operators adding new locations, and small and new investors entering the sector.

The investment metrics for new projects are increasingly marginal, but the lack of alternative opportunities and the continuing capitalization-rate compression are still justifying new development—for now. Is overbuilding imminent in this well-established market? Let’s look at local operating performance and other factors.

Mixed Results for the REITS

There are two real estate investment trusts (REITs) with assets in Australia and New Zealand. National Storage REIT (NSR) is a pure self-storage REIT, while Abacus Property Group is a diversified REIT with self-storage as one of its significant investment sectors. They both reported end-of-year finances on June 30, which is when the fiscal year ends in Australia.

NSR has seen an increase in occupancy in Australian locations to 77 percent, and an increase in revenue per available metre (REVPAM) by 5 percent. The company’s same-store results in New Zealand have experienced an occupancy reduction from 76.3 percent to 71.8 percent in the past 12 months, while REVPAM is stable.

NSR continued its acquisitive ways, completing $138 million in purchases between July 2017 and June 2018, as well as a $285 million buyout of Heitman LLC’s 90 percent interest in the Southern Cross Storage Group joint venture. That transaction set a new benchmark for capitalization (cap) rates in the Australasian self-storage industry, with a passing yield of 5.8 percent. The portfolio consisted of 26 established and stable storage facilities, trading at occupancy of 74 percent.

Abacus owns $629 million in self-storage assets. Its recent reports have shown an occupancy increase to 89.2 percent and a REVPAM increase to 2.2 percent. The company added three new storage sites to its portfolio, taking it to 62 overall. It now has 302,000 square meters of net leasable area. Abacus storage valuations have also seen a reduction in cap rates, down .3 percent to 7.7 percent. The firm also indicates an appetite to grow through acquisition and new development.

Prices and Occupancy Flatten

The Australian consumer has been under cost-of-living pressure with rising energy prices, housing and many other increases. This appears to be biting many retail sectors, which see lower spending and report suboptimum performance.

Urbis, an Australian firm that advises property developers, owners, investors and others, has been tracking self-storage prices and occupancy since 2008, and publishes the “Urbis Storage Index” twice per year. The December 2016 report revealed some softening in occupancy and prices in Australia. In contrast, Auckland, New Zealand, continues with strength. The report states:

Results for the 12 months to December 2016 reveal a continued downward trend in area occupied for East Coast Australia facilities. The decline of 1.13 percentage points supports the Urbis view that occupancy expectations have “topped out.” Average occupancy at the end of the year for sample facilities for the East Coast of Australia was 86.71 percent.

Total facilities monitored in Australia and New Zealand average storage fee rates for all East Coast Australia facilities continued to enjoy moderate growth over the year, recorded at 2.3 percent. Average storage fee rate growth continues to track above consumer price index, which was 1.5 percent for the same period.

Sam Kennard

Sam joined the Family Self Storage Business in 1991. He was appointed Managing Director in late 1994. In that time Kennards Self Storage has grown from 8 locations to over 80 today.

The company is an active and specialised developer of property, focussing on expanding the Kennards Self Storage portfolio in Australia and New Zealand.

Today, Kennards Self Storage is the market leading Self Storage Brand and industry innovator and employs over 230 people in Australia and New Zealand. The company remains a privately owned and family run business.


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