Why self-storage is proving an increasingly popular investment

Few investors would ever have classified self-storage as a sexy asset – until the market suddenly soared and transactions hit a record $6.86 million in the year, up nearly 900 per cent.

Admittedly, that was mostly driven by large-scale portfolio transactions, but it’s impossible to deny its attraction for smaller-scale buyers too, with national occupation rates sitting at around 90 per cent across the country.

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“There’s a lot of offshore investment from the US and Asia, where this investment has historically done very, very well, so they’re seeing opportunities in the Australian market and pursuing them aggressively,” says Vanessa Rader, head of research at Ray White.

“But for domestic investors, like self-managed super funds, and mum-and-dad investors taking their first step into commercial real estate, the low price point makes it a good starting point in both metropolitan areas and the regions. And everyone wants storage these days for their crap.”

Good assets can start at around $100,000, Rader says, but there are smaller locker-like spaces calculated in cubic metres that can be even cheaper.

Demand is also soaring, from downsizers needing places to store redundant furniture to the rising number of apartment dwellers with limited room, and from people living in shared or rental accommodation to tradespeople wanting somewhere to keep tools or vehicles.

Self Storage Association of Australasia chief executive Makala Ffrench Castelli says the industry is now valued at $20 billion, with more than 3300 facilities and 697,000 storage units covering more than seven million square metres, at an average rate of $380 a square metre a year.

“Despite cost-of-living pressures and a slower property market, the self-storage sector continues to demonstrate remarkable stability,” she says. “With over 250 new self storage developments worth $2 billion in the pipeline, the industry’s long-term outlook remains optimistic.”

Over the years, Steve Palise of Palise Property Buyers Agency has bought many storage spaces for clients. He says they can be a good investment because vacancy rates are always low, and risks are further ironed out if you buy multiple spaces.

“They’re often in areas with good infrastructure and growing populations where people don’t have a lot of spare room,” he says. “They’re usually on good land sizes, and they’re a good, versatile asset.”

On the downside, however, that variety of tenants can be demanding to manage and a simple warehouse with one tenant, even though more precarious in terms of returns, can be a much simpler proposition. Self-storage also doesn’t offer much capacity to value-add.

“But our appetite for having more storage doesn’t seem to be likely to wane any time soon,” Palise says.

At a state level, Brisbane recorded the highest year-to-date returns at $1.14 billion, followed by Melbourne at $963 million, the broader Queensland market at $882 million, Sydney at $810 million, regional NSW at $653 million, and Perth at $643 million.