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23. Mai 2013     Print Print 

The self storage industry remains resilient despite VAT increase

The self storage industry remains resilient despite the addition of the 20 per cent VAT charge on storage costs introduced in October 2012.

According to the latest Self Storage Association UK survey, produced by Deloitte Real Estate, a proportion of self storage firms opted to shield their customers from the full 20 per cent increase in rental costs by phasing in the increases over the year. As a result there was only a five per cent fall in the achieved average net rents for UK self storage operators in 2012.

The survey shows national occupancy levels remain steady with average occupancy having dipped just two per cent to 68 per cent over 12 months and the average length of stay increasing to 41 weeks. Operators are reporting that they continue to concentrate on building up occupancy within their existing facilities in preference to developing or extending new schemes.

Rodney Walker, CEO of the Self Storage Association UK, commented:
“The VAT rise affected most of our operators and made self storage a more expensive product for the customer. However, our members are confident that sales and profits can be maintained with 79 per cent of surveyed firms expecting profits to be the same or improve this year. The effect of the VAT increase has yet to be fully measured, but with average occupancy only falling two per cent over the year, members are confident of reversing this over the coming year.”

There is a growing trend for business customers taking space with 42 per cent of occupied space now coming from businesses (up from 36 per cent since 2010). Businesses tend to take larger amounts of space and rent for longer periods than private customers. However, a recent report by The Royal Institute of British Architects (RIBA) has highlighted the shrinking average size of newly-built houses in the UK, with the majority of people surveyed moving into new homes reporting insufficient storage space for all their possessions.

Walker continued: “Few firms are contemplating opening new stores in the short term, and this will allow the industry to concentrate on attracting new customers to fill current space. Most customers using self storage do so for the first time, so there is still huge potential to be tapped into.”

Ollie Saunders, partner and head of self storage at Deloitte Real Estate, said:
“The introduction of VAT has meant that domestic customers have seen some meaningful price increases, but it has not led to a significant impact on occupancy. It has been an interesting test of the price elasticity of the product and goes to show that the industry has remarkable resilience to the economic downturn and is well placed to capitalise on future economic growth. Investors and operators are telling us that optimism is returning and the sector is not oversupplied. It has a diverse customer base, and has demonstrated its robust ability to generate strong cash flows despite a significant fall in the number of housing transactions and a forced price increase. That is a good place to be.

“We are also seeing a number of investment transactions – in the last few months Deloitte Real Estate has acted on the sale of three self storage facilities in two transactions at sub seven per cent yields, all beat expectations on price and saw competitive tension. In the last 12 months there have also been two major transactions in Europe with institutions investing directly in portfolios, all allowing for a renewed depth to the market.”

The survey reports there are approximately 830 self storage facilities in the UK providing in the region of 30.1 million sq ft of storage space. Deloitte Real Estate estimates the total turnover for the UK industry in 2012 was £380m from around 400 different operators, employing over 2,000 fulltime equivalent staff. Of all the facilities in the UK, 330 are held by larger operators (40 per cent), with small operators accounting for the remainder.