David Allan likes to say self storage is a fascinating industry. It’s a statement he often punctuates with a laugh.
“But seriously, it is an interesting business,” he adds.
Allan should know. He is the business development manager for one of Canada’s largest self storage companies, Apple Self Storage.
Roughly the fifth-largest in the country, the company is family-run and like many of the other big players in the multi-billion-dollar industry, it is in growth mode.
“One of the things that makes us a little bit different is we’re probably the most active in development, which means we build new facilities or convert existing spaces into self storage centres,” he says.
The company just expanded its footprint in Canada’s largest market, Ontario. It opened two new facilities in Mississauga — totalling about 200,000 square feet — along with another 67,000-square-foot location in Kitchener.
“A lot of the other companies buy a lot of existing facilities,” he says.
StorageVault busy with acquisitions
For example, the nation’s largest self storage company StorageVault Canada expanded its operations last year by making $178.4 million in acquisitions. Business has been good too. StorageVault (SVI-X) more than doubled its revenues year over year, increasing from about $11 million in 2015 to almost $28 million in 2016.
Allan says self storage is a growing business for a number of reasons, but the main one is supply hasn’t kept pace with the growing population. In part that’s because until the last few years the business has often been seen in unfavourable light — either boring or even a bit sketchy.
“Traditionally storage was driven by the seven Ds (Death, divorce, disaster, delay, dislocations, deliveries and densification)”
These short-term customers still make up the bulk of the business. But a large swath of the population, including investors, considered self storage a little unsavoury because of misconceptions about the industry.
“It’s Silence of the Lambs, or Walter White where he’s storing all his cash in Breaking Bad,” Allan says referring to TV and film portrayals of storage as a place for serial killers and drug dealers to hide their criminal activities. “That’s the mentality and it’s a big challenge for us to overcome.”
Moreover, at one time, storage was pretty bare bones — essentially a garage with a lock. That’s not the case today.
“The facilities are much nicer,” Allan says.
To be sure, self storage has entered a golden age. Facilities now feature very secure, climate-controlled and well-lit environments. Many also have motion sensor lighting and heated floors.
“More of an extension of your house”
“For residential customers, it’s much more of an extension of your house” only better in some ways, he says. “If you don’t want something to get mildew in your basement, you can put it in self storage.”
Although residential use is still the biggest chunk of the business, the fastest growing segment is commercial use. Allan points to Apple Self Storage’s facility in downtown Toronto.
“That building is 140,000 square feet of storage and 96 per cent occupied.” And 70 per cent of the tenants are businesses, he adds.
Many are small businesses — particularly small operations that might be home-based, or unable to afford a bricks and mortar footprint downtown.
“It could be an elevator repair guy who works in the downtown core, and it’s much cheaper for him to keep an inventory of parts downtown at a storage locker than it is for him to drive an hour and a half to pick up a part to come back to finish a job.”
GTA storage space is in short supply
Just as compelling for the industry is storage space is in short supply — at least in the largest market in Canada.
“Across the entire GTA, there’s about 3.4 square feet of storage available per person compared with the U.S. where the national average is about 7.8,” Allan says. “That is a big metric for the storage industry because it tracks the amount of storage available on a per-person basis.”
To that end, the industry has a supply and demand imbalance that favours those supplying space, he adds. And despite the growth among the top players — who are acquiring smaller ones — Apple Self Storage is the only major company adding to the supply in a significant manner, he says.
The favourable market conditions have caught the eye of investors. SmartREIT (SRU.UN-T), for instance, recently announced a partnership to build self storage in the GTA with other locations pending.
“The industry is growing and attracting a lot of attention including institutional capital from hedge funds and pensions funds,” Allan says.
And for these well-heeled investors, self storage tells a fascinating story indeed.