Taking a distinct approach to growing German self-storage
Just over a year from now, in the second half of 2023, Intriva plans to open its first German drive-up self-storage facility, and more will quickly follow. Within 12 months, the first site should reach peak occupancy, with stable tenancy levels. That means we will quickly build one of the first institutional-quality drive-up platforms in Germany, arguably Europe’s most overlooked self-storage market.
Europe’s self-storage industry has grown significantly over the last decade. It is estimated that there are now 5,200 facilities, providing nearly 11 million square metres of self-storage space. Despite the growth in the European market, Germany has been the slowest of Europe’s large economies to develop. Germany has just 3.5 facilities per million people, compared with 29 facilities per million in the UK, Europe’s biggest market.
A defining feature of the current market environment is the scarcity of yield at a time of resurgent inflation. As a highly cash generative asset class, coupled with the ability to bring sites online quickly, self-storage offers an opportunity to combat the prospect of higher inflation.
While Intriva is not the only institutional investor to recognise this opportunity, our niche focus is unique. Others are investing in core in-house self-storage facilities in expensive cities such as Berlin, Frankfurt and Hamburg. We differ because we are targeting drive-up self-storage – so-called because customers can drive up to self-contained storage units and access them directly from their cars. That means we can acquire cheaper out-of-town industrial zoned land (unfit for alternative uses), build a platform quicker, operations are less labour intensive and maintenance capital expenditure is lower. All of this adds up to higher returns on investment.
The concept of self-storage originated in the United States, starting in Texas in the 1960s. Illustrating the potential for growth in Europe, self-storage in the US is now an everyday service, with one in every 10 US citizens renting storage space in 2020.
There is good reason to believe that Germany will follow a similar path of expansion. The country has already recorded a 20% annual growth rate since 2001. We believe that this is likely to continue, especially in the drive-up sub-sector, as new housing developments prioritise living space at the expense of storage, and people move more often. Further, the growth of e-commerce and flexible working during the COVID-19 pandemic has accelerated demand.
So, what are the likely financial returns? As well as having comparably low investment costs, self-storage is highly cash-generative with EBITDA margins exceeding 50% once occupancy is stable. What’s more, the sector has proved extraordinarily resilient during the Global Financial Crisis and recent pandemic. Despite the impact of the pandemic, rental rates outstanding for more than 30 days fell from 8.7% in 2020 to only 3.7% in 2021.
By the end of 2022, we plan to have a brand in place and own about eight sites across the Rhineland. With building work starting soon, in the latter half of 2023, Germany’s first institutional drive-up self-storage platform will begin to take shape.