Thinking about the year that has just been, it is hard to fathom just how much the world around us has changed in such a relatively short period. The COVID-19 pandemic will truly be a momentous point in history, one that we will be telling our children and our children’s children about.
In the midst of the world turning itself inside out to respond and deal with the COVID-19 pandemic, the self storage industry (like most industries) was also frantically trying to come terms with what it all meant. As fear crept in there was initially a very negative reaction, transactions of self storage facilities were put on hold or abandoned, planned rate rises were cancelled, operating expenditure was cut and the industry was preparing for the worst.
So, what really happened?
Well in short, as with the GFC, the world of self storage kept turning; some customers left whilst others moved in and we are now at a point where the industry looks to be coming out of this pandemic stronger than ever.
The first positive news came in March 2020 when governments accepted the essential role that self storage facilities played in the logistics field, in particular medical logistics. They also soon realised that the interactions of storage customers and onsite managers was minimal and, in many circumstances, could be avoided altogether. Self storage had already ticked most of the COVIDSafe boxes.
But self storage wasn’t immune to (excuse the pun) the COVID-19 pandemic. Experienced operators were quickly coming up with their battle plans. Storage King for instance setup a hotline for distressed customers offering many rent relief. Late fees were also generally waived by most operators. Moreover, Public Storage withdrew their takeover bid for National Storage and a handful of other transactions were put on hold.
Overall the mood was generally subdued at this point. By the end of March 2020 the Australian and New Zealand Governments had announced their wage subsidy payments. Keen to keep operating costs down during this uncertain time many operators had started modelling whether their businesses would be eligible for the subsidised wages. So resilient was the business model, we are only aware of a handful of self storage facilities that became eligible.
For most, May 2020 – June 2020 was the low point in terms of monthly revenue. Of all the self storage facilities we have analysed over this time, the worst decline of a facility we have seen to date was a circa 12% fall in monthly revenue between February 2020 and June 2020, far from the requisite 30% fall required to be eligible for each respective governments wage subsidy. Since this low point, the facility has all but recovered. Feedback from operators was that towards the end of May 2020 enquiry and move ins started to pick up. By July 2020 we had generally started to see monthly revenue starting to recover and grow. In some markets such as Auckland we have actually seen healthy growth in monthly revenue, with the best performing facility achieving monthly revenue growth of circa 9.5% from the previous year.
The resilience of the self storage industry is being noticed by more and more institutional investors. For our team at Cushman & Wakefield, the level of enquiry from new groups looking to enter the market has never been so high. Moreover, low borrowing costs and competition for self storage assets from existing institutional investors has meant we have continued to see further declines in capitalisation rates, especially for quality assets in prime locations.
The COVID-19 pandemic has still some way to go and it would seem that our lives will continue to be disrupted until the world is vaccinated. But for this industry, the mother of all disruptors, COVID-19, doesn’t appear to have made its impact.