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Home > Self-storage industry news > What does Brexit mean for the UK Self Storage Industry?, SSA UK clears the fog


What does Brexit mean for the UK Self Storage Industry?, SSA UK clears the fog

 

Here is what SSA UK had to say, in a paper they published today: 

There has been much speculation about the impact of Brexit on the UK economy and business generally since the June 23 vote. Two weeks later and there is still uncertainty about what effect this decision will have on the economy in the coming months.

In regards to the self storage industry there is nothing to indicate that the Brexit vote will have a significant adverse effect on the industry, even at the more pessimistic or conservative end of the range of economic forecasts.

Self storage is a localised industry 

Self storage is a localised industry, with demand for each store typically coming from within a fifteen to twenty minute drive time. There is an element of self storage customers that are transient in nature, and within this group some will be migrants moving into or out of the country, to or from the EU and the rest of the world. The industry’s customer base is very broad and diversified, and in our judgment any change in migration rules that may result from Brexit in due course is likely to have a negligible impact on overall customer enquiries.

Impact from broader economic downturn 

The self storage industry in the UK came through the 2008/9 recession and also the imposition of 20% VAT onto self storage in 2012. The industry proved relatively resilient to each of these circumstances and now has higher occupancy and revenues than before the recession.

There had been a significant increase in supply prior to the start of the recession in 2008/9 with the industry almost doubling in size over the previous 5 years. In the past six years, new store openings have fallen considerably and while the industry continues to grow, it is not at the pre-2008 rate. This has resulted in improved occupancy and returns which better positions the industry to handle the effects of an economic downturn if it eventuates.

Following the recession, in common with many other sectors the Self Storage industry experienced a consolidation in balance sheets. The reduced expansion rate has seen demand grow faster than supply, and average occupancy levels increase materially as a result. Cash flows within the sector are therefore in an even stronger position to service any debt than they were immediately prior to the recession.

The diversity of self storage customers means that different people use the product during periods of economic uncertainty. Examples of this include businesses preferring the flexibility of self storage over longer leases on warehouses, home businesses tend to increase their use during these times and people downsizing property. Self storage is a needs-based product offering that demonstrates relative price inelasticity, and is often driven by life changing events such as the birth of a child, entering or leaving a relationship and death in the family. All these things continue regardless of the economic climate.

In our view, the industry is therefore well placed to weather any potential economic downturn, again, even at the more pessimistic end of the scale.

Impact from a property slowdown 

A significant number of people use self storage while moving house, so changes in the property market can impact the level of customer enquiries. However as stated earlier, self storage in the UK has a diverse customer base and even when housing prices fall people still move house and require storage, so while this segment of the market may decline slightly if there is a fall in housing transactions this is likely to be offset by increases from other customer segments. In particular, if people are unable to move within the owner occupied sector, operators expect to see an increase in demand from people moving within the rental sector.

Past trends have indicated that during slow property transaction periods people stay longer in self storage, possibly storing their goods while waiting to move into a new property, or dealing with excess goods while downsizing. Therefore, the churn rate of customers slows while the average length of stay increases. This reduces the number of new enquiries needed to maintain stabilised occupancy in any given period.

Access to funds 

As the industry has matured in the UK, access to funds for development in the industry has become easier with greater understanding of the industry by lenders. All the information we have from lenders involved with the industry is that debt availability remains good. There may be some more scrutiny by banks in their underwriting but this should not impact operators with solid development plans.

Furthermore, the industry has continued to attract interest from alternative classes of finance. Self storage as an asset class offers ongoing income and cash flow stability, meaning it continues to remain a strong performer across the property asset class and attractive to new forms of finance through debt or equity.

Industry performance 

Most operators were reporting solid results for June up until the vote and there has not been any evidence that this has changed significantly as a result of the Brexit decision. All indications are that the industry is continuing to perform well.

For more information on the industry go to  www.ssauk.comor contact the Association’s CEO, Rennie Schafer on 01270 623 150


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