The Four Ds Driving Australia’s Self-Storage Boom

Behind metal roller doors across Australia, a significant shift in commercial property investment is quietly unrolling. Former vacant buildings and undeveloped land are being transformed into self-storage facilities by institutional investors. This seemingly mundane asset class has become one of commercial property’s hottest sectors, with yields outpacing traditional investments and attracting substantial domestic and international capital. CBRE national director, alternative assets, Dylan Adams has tracked the sector’s meteoric rise, and views self-storage as one of commercial property’s most resilient and rapidly evolving asset classes. Adams describes self-storage as “a counter-cyclical market that’s been dubbed recession-proof”. “When looking as far back as the GFC, it was the only asset class globally that improved and then the same again during the pandemic—with all these new market participants coming in, it had the highest period growth ever recorded for the asset class. We saw yields compress significantly over that two-year period which in turn saw capital values rise.” This dramatic yield compression resulted from a fundamental shift in the competitive landscape. Pre-Covid, there were only three major buyers in the market—listed companies Abacus Property Group now known as Abacus Storage King REIT, the National Storage REIT and the family-owned Kennards Self Storage. When the pandemic hit, private equity firms such as Blackstone entered, followed by a few smaller groups, creating competitive tension that drove yield compression and the capital value increases. ▲ CBRE national director alternative assets Dylan Adams. Australia’s $2-billion self-storage sector remains somewhat fragmented but is rapidly corporatising. According to research completed by CBRE, ASX-listed National Storage REIT leads with more than 250 centres, followed by Abacus Storage King REIT (about 150) and Kennards (more than 100 facilities). These major operators represent about 22 per cent of market share out of more than 3300 facilities across Australia and New Zealand, with ongoing consolidation expected. “CBRE receives weekly phone calls from global REITs which include major US players that are looking at the market, which highlights the interest in the asset class from offshore capital. “There’s been about $800 million in capital raising that has been secured in the past 24 months,” Adams says. Storage Investments Australia (SIA) recently acquired a 6557sq m vacant site at South Morang, Melbourne, advancing its vision to build a national portfolio. And Singapore-headquartered StorHub, backed by US private equity firm Warburg Pincus, recently completed a circa $110-million acquisition of three Sydney sites. The company rapidly built a $420-million Australian portfolio across 11 properties in Sydney, Melbourne and Brisbane since entering the market in 2024. “Traditionally, the likes of National Storage REIT, Abacus Storage King REIT and Kennards Self Storage have been the most active market participants though most recently StorHub has taken a step to the podium. They’ve been very acquisitive,” Adams says. “Smaller groups like Chapter and Co and Storage Investments Australia could be seen as the up-and-comers as they expand their portfolios.” Other notable transactions include Blackstone entering the market in 2021 through its DBI Storage platform, while GIC (Singapore’s Sovereign Wealth Fund) has partnered with National Storage REIT, with another local player rumoured to be in its sights. ▲ We ’ ll see more unmanned storage sites in the market soon, Adams says. Recent deals have transacted at capitalisation rates below 5 per cent, outperforming the broader industrial sector. “Traditionally, storage had been pitched as an industrial asset but it very much stands on its own now,” Adams says. “The spread between the average yield for industrial and storage is still quite wide.” According to CBRE research, National Storage REIT currently trades at a capitalisation rate of 5.89 per cent, while Abacus Storage King REIT reports around 5.56 per cent. Multiple factors drive investor interest in the sector. Adams refers to the “4Ds: deaths, displacements, downsizing, divorces” but notes there are many more layers of drivers. “Australia’s population is growing and so our living situation is materially changing as it is becoming denser. Add the fact houses are getting smaller, so the need for storage is far greater than previous years. “In terms of displacement, we’ve had significant weather events occur. There was a stat in 2022 that around 70 per cent of people actually lived in an LGA that flooded, and the effect of that you see spikes in the demand for storage on that basis,” Adams says. Research supports this view. By 2026, 22 per cent of Australians are expected to be aged over 65 years, a 16 per cent increase since 2020, potentially leading to more downsizing. The crude divorce rate increased to 2.3 per 1000 residents in 2023 from 2.2 in 2022. Australia’s population grew by 2.4 per cent as of June 2024, with significant net overseas migration. StorHub group chief executive Raju Ruparelia confirms that “strong population growth, rising housing costs in metropolitan areas, and the increasing need for decluttering in the hybrid work environment post-pandemic” are additional factors. ▲ StorHub group chief executive Raju Ruparelia. Sector evolving from its traditional form The typical size of storage facilities is increasing. “Traditionally facilities averaged around 5000sq m of net storage area. Now, because of the institutional buyers increasing appetite and their specific pricing levels, that size is now around 6000-7000 square metres,” Adams says. Growing e-commerce adoption is a key trend driving the sector. In 2022, more than 9 million Australian households made online purchases, with e-commerce penetration forecasted to reach 17 per cent by 2026. This shift has created demand for flexible storage solutions beyond simple storage. “A lot of facilities, like Kennards Self Storage, now offer conference rooms and free Wi-Fi. So, that makes it the perfect setup for the e-commerce businesses,” Adams says. New workspace concepts are also being incorporated into designs. In Canada, storage facilities are achieving rents 50 per cent lower than traditional office space, with one Toronto facility owner reporting that 70 per cent of his space is rented by businesses. Traditional ranch-style facilities with manager residences are being replaced with multi-level urban developments, with designs in Sydney’s Mascot area featuring up to nine levels of storage. Technology is also transforming the sector, with unmanned concepts gaining traction. “There’s an operator in Queensland called Swift Storage—they have gone fully unmanned with no staff onsite by adopting a Bluetooth system called Noke whereby the customer can sign up online and then access the site via their phone.” When it comes to investor preferences, “everyone wants Sydney”, followed by Melbourne and Brisbane, then Perth and Adelaide “pretty much on the same level”. ▲ National Storage Breakwater South near Geelong. Image: National Storage While institutional capital focuses on metropolitan areas, Adams sees value in outer metro areas such as Geelong and Newcastle. Self-storage presents compelling opportunities for property developers too. “There are a few industrial developers who have built the facilities as contractors for the larger players but now are shifting towards securing sites themselves, building it and then selling them as turnkey opportunities,” Adams says. StoreLocal picked up two of these turnkey sites through on-market campaigns, which was unusual because the majority of the market operates on off-market or selective-target campaigns”, Adams says. This approach aligns with institutional buyer needs, as some of the larger groups “don’t have the development capability and prefer to focus on acquiring operational facilities with existing cashflow”. Troon Group is partly pursuing this strategy, paying $10 million for a facility at Dandenong South, Melbourne, with plans to seed a self-storage fund. There’s also growing interest in co-locating self-storage facilities with mixed-use developments and expanded offerings. “There are a few new products now forming part of the design of these facilities coming out where they’re potentially doing WeWork-type opportunities, setting up temporary office spaces so people can use them when needed,” Adams says. “It’s certainly the intent. It hasn’t really taken off yet but that’s where a lot of the designs are now going—toward more co-location uses.” Adams remains bullish on the sector’s prospects despite “concern from a few groups saying there’s an oversupply”. “There’s about 750,000sq m of proposed storage throughout Australia. Even if they all get built, it will only change the supply ratio by about 0.2sq m per person, which is extremely low.” ▲ “There ’ s a lot of opportunity for institutional buyers to come in, price an asset, do a quick transaction and get it,” Adams says. Interest rates have had little effect on investor appetite “because the average yields are still high” at about 6 per cent, while borrowing costs remain just below that level. JLL director of alternatives research Louise Burke attributes the sector’s momentum to strong operating performance and increased institutional interest, though notes that originating opportunities can be challenging as strong performance means owners are reluctant to sell without premium prices. “If you compare it globally, the US, Europe and UK’s average yields for A-grade stock are high 4s and low 5s, whereas Australia is around at 6,” Adams says. “So, I think on a global level that gap is where the opportunity is and why all this offshore capital is focusing on Australia.”

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