If there was one real estate sector in Canada that is under-developed relative to the U.S. market it is self-storage. It may be that Canadians hoard less stuff than their southern cousins or, more likely, their garages and backyards are simply more crammed and cluttered.
Canada’s self-storage gap has caught the eye of California-based Strategic Storage Trust Inc. (SSTI), one of five publicly registered self-storage REITs in the U.S. and is “one of the fastest growing self-storage REITs nationwide” according to its boilerplate description.
SSTI owns 122 properties in 17 states and in Canada, operating under the SmartStop Self Storage nameplate. Without much fanfare, its operations north of the border comprises four properties in GTA and expects to grow from there.
“We intend to continue to acquire either in-place, stabilized facilities or if we can’t find properties that make economic sense, then we are developing,” said Wayne Johnson, the company’s senior vice-president of acquisitions.
Strategic Storage has found the pickings to be slim, so he expects development will be the main vehicle for expansion in Canada in the future.
Three of its four Canadian properties fall under the development category. Its first property was the purchase of an existing self-storage building that was underperforming (Dufferin St. shown on left in image), followed by the conversion of an existing warehouse facility in Mississauga (shown on right in image) that was converted to storage and a new build in Brampton. In September, the company announced that it had acquired an industrial building in Pickering for $5.4 million.
“Toronto appears to be underserved, although it is an expensive place to build,” said Johnson, who is based in Dallas. “The demographics would support not a traditional amount, but some development.”
He characterizes the competition as a mixture dominated by regionally owned players. That puts Strategic Storage in the position of underdog in the GTA.
“It is not until we have 15 or 20 that we have economies (of scale) or at least 10,” he said. “So there are plenty of operators that have 10, 15, 20 properties.”
While he has spent some time in the GTA and is up to speed on the latest follies of Toronto Mayor Rob Ford, Johnson is reluctant to look into the corporate crystal ball with regards to Strategic Storage’s future expansion in the region.
“Ten years out? That is hard to say. Five years out, we are hoping to add another five to 10 facilities if we can locate them. We are not just going to pull the trigger to get deals done. It is quite expensive to build up there.”
In the three years it has been in Canada, the company has done both new construction on raw land (Brampton) and re-purposing of existing facilities. Given that self-storage facilities are best located close to where people live and work, there will be more opportunities for re-development in the future.
“It is pretty obvious that the closer into the core you are getting, the likelihood is you will be converting a building or tearing down something,” Johnson said.
• 3136 Mavis Road in Mississauga, Ont. (815 units; first redevelopment project).
• Highway 427 between Queen Street and Brewster Road in East Brampton, Ont, (930 units; first ground-up development project, which opened in July 2013).
• 4548 Dufferin Street in Toronto (1,060 units; first Canadian acquisition in November 2010).
• 600 Granite Court in Pickering, Ont. (890 units and approximately 91,000 net rentable square feet) Conversion is expected to begin in the 2nd quarter of 2014 with opening anticipated for the 4th quarter of 2014.
Counting its Canadian portfolio, the Strategic Storage portfolio comprises about 77,000 self storage units and 10.2 million rentable square feet of storage space.
The self-storage story
According to Acorn Storage Inc. of Creemore, Ont., which aims to do its own bit to consolidate the storage market in Canada, the country is ripe with potential. On its website (acornstorage.ca) it lists how Canada lags:
• Currently at lower than 50% of the maturity levels of the American self-storage industry.
• Fewer than 1 in 20 households currently use self-storage (half the rate of U.S. households).
• Total net rentable square feet represents just 2.5 square feet per capita (versus 7.5 per capita in the U.S.).
• Highly fragmented, with few national brands and mostly independent owner/operators owning only one facility.
• Canadian real estate investment companies and institutional investors have only recently begun to recognize self-storage as a legitimate asset class.
• Current focus for large real estate investment companies and REITs is on building portfolios in major urban markets, acquiring and developing properties of 50,000 sq. ft. or more with stabilized occupancies.
Strategic Storage, too, is no slouch at promoting the category. Its site (strategicstoragetrust.com), touts:
• Approximately 46,500 self-storage facilities in the U.S.
• One in 10 households currently rent a self-storage unit, up from 1 in 17 in 1995.
• Self-storage has been the fastest-growing sector of the U.S. commercial real estate industry in the past 35 years.
• Self-storage facility gross revenues were $22 billion in 2010.
• It’s fragmented. 27,650 small business owners (90% of all self-storage companies) who own and operate just one primary self-storage facility.