The slowing housing market and looming oversupply are weighing on the $1.2 billion a year self-storage sector, with operators forced to discount rates to maintain occupancy levels and average per-metre revenues.
While Perth has been the worst-performing market, the malaise is clearly evident in Sydney and Melbourne although the trends are inconsistent on a suburb-by-suburb basis.
The fast-growing sector is vulnerable not so much to declining property prices, but the resulting slow-down in housing turnover that results in fewer residents temporarily parking their goods in storage units.
“The observations from the field ... are that competition is biting hard and aggressive pricing is becoming commonplace,” said Kennards Self Storage CEO Sam Kennard.
National Storage CEO Andrew Catsoulis said the softness was driven “predominantly” by Sydney and Melbourne, but off a high activity base.
“You can’t take $13 billion of housing sales activity out of any market and expect to see no impact,” he said, adding that no market had “fallen off a cliff” entirely.
Mr Kennard said the Sydney market was subdued but patchy, with discounting of up to 20 per cent for new customers in one location. “We have several others where street rates are down between 10 per cent and 15 per cent,” he said.
However, Mr Kennard disputed competitor suggestions the company had experienced 3 percentage point occupancy declines. He said Kennards' like-for-like Sydney occupancies had fallen an average 1.3 per cent, while the company’s NSW revenue per available metre (revpam) was stable.
In Victoria, Kennards’ occupancies rose 0.2 per cent while revpam lifted 4 per cent.
In its recent half-year results, the listed National Storage reported overall stable occupancies of 80.4 per cent, but with revpam declining 2.3 per cent to $215.
The revpam decline largely reflected the increase in discounting such as ‘first month free’ sign-on offers.
Mr Catsoulis said National Storage had responded quickly to the downturn by increasing its digital marketing, including focusing on retirement villages and customer ‘life events’ such as downsizing.
“This business differs to retail. It’s a much less discretionary spend,” he said.
The company has also been targeting SMEs, including small e-commerce providers using self storage as the ‘last mile’ in the delivery chain.
National Storage is Australia’s biggest self-storage operator with 146 centres valued at $1.6 billion.
The weaker trends are also reflected in the latest sector report from property consultancy Urbis, which shows outer Sydney and outer Brisbane leading occupancy declines, of 5 per cent and 5.33 per cent respectively.
Overall, average storage fees grew by 1.89 per cent, a slower growth rate than in recent years.
In the difficult Perth market, occupancy rates and storage fees declined 1.77 per cent and 1.12 per cent respectively. However the inner Sydney market bucks the trend with increased utilisation.
According to Urbis, national occupancy rates vary from 70.4 per cent in Perth to 89.95 per cent in inner Melbourne, with greater Sydney occupancies averaging 82.35 per cent.
Despite the “dubious economics’’ of many proposed self-storage projects, Mr Kennard said investors were still showing keen interest in the sector.
Urbis data suggests the housing downturn is failing to dent supply, with 41 “proposed and future” facilities as of the end of 2018. In addition, 13 new facilities were opened in the second half of the year.