Income-seeking investors eye Europe’s self storage sector
As Europe’s self storage sector evolves, new investment strategies are coming into play.
Europe’s self storage sector is attracting a more diverse range of capital amid growing consumer demand.
Rapid urbanisation, mobile populations and smaller living spaces are driving the self storage sector around the world, with the European market attracting €250 million of investment over the past 12 months.
And, as the sector grows, it’s continuing to attract new investors. Legal & General Investment Management (LGIM) bought its first portfolio in 2019.
“Across all real estate sectors, investors are looking for reliable income streams,” says Ollie Saunders, lead director of alternatives at JLL. “From an income perspective, self storage is a very predictable and dependable sector.”
As the European market matures, investors are coming from further afield. U.S. private-equity firm The Carlyle Group launched a joint venture with UK-based self storage operator Safestore this year to buy a portfolio in The Netherlands.
Different routes to exposure
Yet, a lack of access routes is a stumbling block, says Saunders, who points to a fragmented European market, where most facilities are owned and operated by small companies.
“One of the biggest barriers to entry for institutional capital has been the lack of scale in the self storage industry,” says Saunders. “Development of a sizeable portfolio of high-quality facilities in good locations take time.”
Direct acquisition is not the easiest route, he adds: “The lack of stock or entrepreneurial operators can prove frustrating.”
However, as more professional self storage developers and operators become established, investors are turning to joint ventures and forward commitments.
For its first steps into the sector, LGIM agreed a management contract with SureStore Management Services for its 140,000 square foot UK portfolio. Meanwhile, investment manager Newcore Capital Management this year agreed a partnership with Engage Management Services to assemble a portfolio of UK self storage assets.
“There aren’t that many sector specialist investors out there, so partnering has made sense,” Saunders says.
Listed self storage specialists, such as the UK’s Big Yellow, have also grown in scale and offer an alternative route for investors to gain exposure. BlackRock, Threadneedle and Norges Bank Investment Management hold stakes in the London-listed firm.
A growing market
Despite a recent growth spurt, Europe’s self storage sector remains undersupplied. With 4,350 facilities across the region, or nine stores per-one million inhabitants, Europe lags the U.S, where there are more than 160 stores per-million people.
But expansion is happening and could accelerate, Saunders says. Listed on Euronext Brussels, Europe’s largest self storage developer and operator, Shurgard, continues to expand, having recently added four properties in France.
London-based private fund manager Metric Capital Partners also plans to grow across Europe. Earlier this year, the firm created its MCP Self storage Platform, to fund independent self storage operators across Europe. The firm, which invested in operator Less Mess Storage in 2016, bought two operators in London and Leipzig.
Banks, too, are looking favourably on the sector. UK firm Lok'nStore was recently given £75 million of new financing by Lloyds Bank and The Royal Bank of Scotland to fund its expansion.
With Europe’s top 10 operators accounting for just a quarter of the region’s 4,350 facilities, the sector is likely to consolidate over time.
“It’s not unreasonable to think that in a few years from now, the larger players will have got bigger,” Saunders says. “That should then go towards satisfying the demands of investors looking to allocate large tranches of capital in one movement.
“Demand from both end users - and investors - is firmly there.”