Is Self Storage a Good Investment in the UK?

Over the last ten years or so, self-storage has developed into one of the more stable property investment sectors in the UK. This is often overlooked by other sectors, such as industrial and residential property; however, the Self-storage sector has some very strong fundamental elements and consistent demand drivers.
Whether you are thinking about investing in Self-storage, then below is a balanced View of how we see things currently.

The demand element is very strong
One advantage Self-storage has over most other property sectors is that demand for this type of accommodation is present in both positive and negative economic conditions.

In periods of positive growth in the economy there are increased levels of movement, business expansion and therefore an increase in the amount of stock taken on and a general increase in consumption, all of which provide additional demand for Self-storage. Conversely, during times of recession, consumers reduce their expenditure and businesses reduce the number of offices required; individuals downsize their living arrangements, and redundant employees begin to work from home using fewer rooms. Again, providing additional demand for Self-storage.

While it may seem counterintuitive that Self-storage is affected by economic cycles, the reality is that the demand drivers for Self-storage move in the same direction regardless of the economic cycle's direction. This provides resilience to this asset class and explains why institutional investors have recently shown greater interest in this sector.
There remains potential for future growth in the UK market

Compared to the United States and Australia, the UK has considerable scope to develop its existing Self-storage provision per head of population. While this disparity has narrowed considerably since 2008/09, it has not entirely disappeared. Furthermore, whilst many regions of the UK have increasing numbers of good quality Self-storage schemes available, particularly in primary cities and major conurbations, in many other areas good quality supply continues to be relatively scarce.

Urban areas appear to offer the greatest opportunities for Self-storage development. Increasing residential density, decreasing size of housing stock and reduced availability of internal storage within dwellings have created a demographic group requiring external storage options - not merely infrequently, but regularly throughout their lives. This structural shift cannot be reversed.

Secondary towns and commuter-belt locations also warrant monitoring. As remote-working has gained greater prominence, people have relocated away from city-centres and subsequent storage requirements have migrated with them.

Occupancy & yield
Once matured, well-operated Self-storage facilities located in suitable positions, typically achieve occupancies ranging between 80% to 90%. Occupancy can take 2-4 years to stabilise post-opening/lease-up. However, once stabilised, a Self-storage facility will generally retain its position.

Yields differ based upon location, configuration and whether the unit is operational or in development. Established assets located in high-demand locations have historically traded at yields reflecting increasing institutional investor interest in this sector. Development projects inherently carry greater risk, but can generate superior returns for operators capable of managing each phase successfully (planning/building/leasing).

Additionally, revenue per square foot can be proactively managed through pricing adjustments to respond to changing demand patterns. Ancillary income generated from insurance products, packaging supplies and vehicle rental also contribute towards total return.

What do build costs look like?
Developing a brand-new self-storage facility is costly, and the costs of building have risen significantly over recent years, in line with the broader construction market. Depending on product type/configuration/location, build costs for a newly constructed facility can vary widely (approximately £80/sq ft to £150/sq ft). Multi-story facilities situated in densely populated urban environments tend to fall at the upper end of these price ranges. Land acquisition, fit-out, planning and funding costs add to build costs.

Economic viability is maximised when a site offers ideal characteristics (visibility/accessibility/proximity to target customers), enabling a new facility to lease up more efficiently and generate premium rents. A high-quality facility situated on a constrained site will generally outperform a lower-cost site that is harder to locate/access.

The risks associated with this area of self-storage should be understood clearly
It would be an error to assume that self-storage does not carry risks. It is equally important to understand where these risks reside.
The lease-up phase represents the largest single risk. A brand-new facility will incur considerable upfront costs before generating material revenue; therefore, if demand is lower than expected in the local market, it will take longer to stabilise occupancy and ultimately cost more. Therefore, conducting thorough demand assessments before making a decision about a site is not merely optional – it is essential.
As noted earlier, competition is another risk. In recent years, the sector has attracted significantly more capital and, in many locations, supply has grown faster than demand. Choosing a location with limited constraints relative to new supply (due to factors such as land availability, planning restrictions or a combination thereof) will greatly reduce this risk.
The level of operational intensity may appear greater from the outside than actual. Self-storage is not "passive" income. To generate meaningful returns requires an active approach to managing customers, setting prices and continually promoting the business. As stated previously, facilities that operate successfully produce significantly better results than those that are poorly managed.
Where the industry has evolved over the past ten years
At the time, ten years ago, self-storage in the United Kingdom was dominated by a small number of major players, along with a vast majority of relatively small, typically poorly designed facilities. This picture has changed. Institutional investors have entered the industry, which in turn has brought better design, better operations, and more sophisticated pricing and customer-acquisition methods. While this is generally beneficial for the industry as a whole, it also indicates that the standard for what makes a facility competitive has elevated itself.
Therefore, new entrants in the marketplace need to either build or purchase high-quality properties located in areas with limited new supply that provide superior customer experiences. Conversely, attempting to create success with old and/or secondary facilities has become much more difficult than in the past.
The expected state-of-the-art of 2025
Interest rates continue to be a consideration for all types of construction projects; however, the current financing landscape appears far more favourable than at its peak. Construction expenses have stabilised following two years of rising costs. Consequently, the feasibility of development schemes that were previously questionable has improved.
While investor interest in self-storage remains robust, the amount of available capital directed to self-storage has expanded. The resulting effect has been decreased yields on prime assets due to increased competition; however, the fact that so many investors continue to look favorably upon self-storage validates its classification as a mainstream form of real estate investment.
To date, no changes have occurred in the underlying fundamentals of self-storage. However, for developers and investors who can identify and secure suitable sites for development, navigate through the regulatory process and build their respective developments effectively, and successfully manage their respective developed facilities for maximum performance, self-storage will continue to represent an attractive opportunity in 2025. While the ability to execute these various aspects of self-storage investments may be slightly more challenging today than it was three or four years ago, there is still ample opportunity for successful developers and investors.