Self-Storage as an Alternative Investment - Intelligent Partnership (2022)

Many agents I speak to are very keen to be able to offer commercial property investments as it’s a sector they and their clients feel very comfortable with. For the same reasons, they’re also keen to be able to offer UK based investments. This month I wanted to write about a new sector coming into the alternative investment market that meets both of these criteria – investing in self-storage. With favourable commissions, an easily understood core proposition and a strong appeal to clients this is a sector worth investigating.

What is self-storage?

I’m sure most of you are familiar with the large and highly visible self-storage facilities that have sprung up on the fringes of major towns and cities over the last decade. These establishments offer private individuals or small businesses the opportunity to rent space on a short term basis, with storage units ranging from 25 to 200 square foot and rental periods can be as short as one week. This highly flexible storage solution is becoming increasingly commonplace as more public awareness grows.

For individuals the primary reasons to rent additional storage space remain social factors such as: the increase in single occupancy households; families moving home; marriage; divorce; retirement and downsizing; students moving away during the academic year and the growing phenomenon of “boomerang kids“. Lack of available suitable housing stock for families and single people all result in the need for individuals to enter into storage for both short and long term contracts. All of this adds up to rising demand and private individuals are the largest segment of the self-storage market, accounting for around 64% of the lettable space.

(Video) Management Options and Technology for your Self-Storage Facility

However, businesses are also increasingly using self-storage solutions and represent a growing proportion of the market from quite low levels to take over 36% of the available space in 2010. This is good news for the storage companies as business rent more space for longer periods. Business are turning to self-storage solutions to archive files and paperwork; to store stock and office equipment and to meet fulfilment needs driven by e-commerce.The flexibility of self-storage has a strong appeal to small and medium sized businesses who do not want to make a large capital outlay for storage space.

Self-Storage Centers

The most effective facilities are located on vibrant office and commercial business parks, within easy access of motorway links and within short driving distance of major conurbations. The sites have maximum OTS (opportunities to see) for large traffic flow from either motorways or large main roads and of course they need to be located in highly populated and affluent areas.

Terms of Business

Tenants typically have to pay one month’s rent as a deposit and one month’s rent upfront. Rent is then collected monthly and if any tenants default on their rent the storage company is legally entitled to open the storage unit, sell the contents and use the proceeds to cover any outstanding rent. The best sites offer 24 hour CCTV and various counter-drone solutions (check out this counter technology), state of the are alarm systems, 24 hour access 7 days a week and value added services such as packaging facilities, office facilities, PO Box addresses, free pick up services and outbound mail services.

(Video) Denis Shapiro - Utilizing Alternative Investments For Wealth Creation

Typically, tenants rent storage space with the intention of using it as a short term fix, however many of them find after a few weeks that it’s additional space they can’t live without!

The UK Self-Storage Market

Self-Storage was first established in the UK in 1980’s, initially in the London area. The industry has grown steadily in the UK and for the five years to 2010 has recorded growth rates of between 8% and 15% per annum. Storage rental has increased in both price and volume during this period. This has been fuelled by the growth of multi-site operators such as Safestore, Big Yellow, Access, Lok’n Store, Shurgard, Space Maker, Storage King and HSIL Property, as well as smaller businesses looking to enter the sector.

There are now more than 350 companies operating more than 750 self-storage facilities in the United Kingdom. The industry generates revenues of about £360m, has over 235,000 customers using self-storage and provides employment for 2,700 people. There are around 750 significant facilities in the UK and around 26m rentable square feet. The largest concentration of centers remains in London and the South East.

(Video) Why Apartment Investors are Turning to Self-Storage for Double-Digit Returns

The latest UK Self-Storage Industry Association (SSIA) annual report, prepared by Drivers Jonas Deloitte in June 2011 reveals that the UK self-storage industry has remained resilient throughout the recent economic slowdown and is now looking forward to a period of steady growth. Most operators are expecting to increase rents for both new and existing customers in the coming 12 months and customers are continuing to increase both their length of stay and the amount of space they rent.

Outlook

The most commonly quoted statistic here is a comparison to more mature markets in the US and Australia: whilst in the UK there is only 0.5 square feet of lettable space per person, Australasia has 1.1 and the US has 7.4.

This large discrepancy between the size of the UK and the US market is down to how consumers perceive self-storage. In the UK renting self-storage is primarily seen as a short-term solution to a temporary shortage of space brought about by events such as moving home, divorce or downsizing. In the US renting a self-storage unit is very much a normal part of life and is viewed as an extension of the home. Once the British begin to view self-storage in the same way as the Americans then we will potentially see growth to US levels of market penetration.

(Video) The most important TAX LOOPHOLE IN REAL ESTATE - cost segregation and bonus depreciation | EP 33

Investing in self-storage

Until now the self-storage market has been dominated by the large PLCs, who are the familiar multi-site operators; Safestore, Big Yellow, Access, Lok’n Store, Shurgard, Space Maker, Storage King and HSIL Property. Smaller players have tended to be privately owned, small-scale local companies.

However, new market entrants are now using innovative models to raise funds. These companies offer private retail investors the opportunity to purchase a storage unit in their development and then give them the option to either lease it back to the operating company for a fixed rental yield, or let it out privately themselves or through a letting agent.

So by investing in a storage unit investors can access one of the few growing commercial property sectors in the UK at this time. This has a strong appeal to clients who are familiar with the idea of owning bricks and mortar, who are not comfortable with the thought of investing hard earned cash abroad in a far flung location and who are keen to purchase regular income. Provided that the investment is structured correctly and is compliant with the HMRC rules it is a SIPPable proposition and is not classified as a UCIS (Unregulated Collective Investment Scheme)

(Video) Sacramento City Council - August 23, 2022

Risks and pitfalls

Of course, no investment is without risk. Here the investor is primarily banking on their storage unit being successfully tenanted for the majority of the time, so they have to be confident that the storage facility is in a good location, that the operator or letting agent will promote it effectively and that there is a genuine market out there for self-storage. If they enter into a leaseback agreement, they need to be confident that they are getting a fair rental yield and make sure that they understand the various break clauses and rental review periods within the agreement. Investors’ also need to be clear how they intend to exit the investment. If the concept of self-storage does take off in the way it has in the US, they could be sitting on some very nice capital appreciation and find that they own a very valuable and highly sought after underlying asset that is easy to sell on. Alternatively if the market does not establish itself they might find they own a fairly expensive empty space – so investors need to understand this and take a view on the potential size of the secondary market.

Next steps

I suspect we will start to see and hear a lot about this topic and this investment in the coming months as new self-storage companies look to agents and IFA’s to help them raise money from private investors. If you are interested, take the product from a reputable distributor and carry out thorough due diligence to ensure you are not unwittingly selling a UCIS or putting your clients into a dud product that cannot perform.

FAQs

What are the 4 main categories of alternative investments? ›

Alternative investments are supplemental strategies to traditional long-only positions in stocks, bonds, and cash. Alternative investments include investments in five main categories: hedge funds, private capital, natural resources, real estate, and infrastructure.

What are the different alternative available to an investor for the investment purpose? ›

Conventional categories include stocks, bonds, and cash. Alternative investments can include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts. Real estate is also often classified as an alternative investment.

How many self storage facilities in the us? ›

In 2019, there were 47,863 self-storage facilities in the United States, up from 45,547 facilities in the previous year.

What does alternative asset management mean? ›

Alternative assets typically refer to investments that fall outside of the traditional asset classes commonly accessed by most investors, such as stocks, bonds, or cash investments.

What are the risks of alternative investments? ›

Alternative investments and hedge funds involve a high degree of risk and can be illiquid due to restrictions on transfer and lack of a secondary trading market. They can be highly leveraged, Diversification does not ensure against loss.

What are the common features of alternative investments? ›

Features of Alternative Investments
  • Low correlation with the traditional investments. This may be extremely beneficial to potential investors because the low correlation provides opportunities for portfolio diversification.
  • Hard to determine the underlying value. ...
  • Relatively low liquidity. ...
  • High purchasing costs.

What are 5 investment alternatives? ›

Most people think of investing as buying stocks, bonds, mutual funds, or exchange-traded funds (ETFs).
...
For 2022, while gold and property still make the list, we also consider owning a business and P2P lending.
  • Peer-to-Peer Lending. ...
  • Real Estate. ...
  • Gold. ...
  • Owning Your Own Business. ...
  • Equity Crowdfunding.

Which of the following investment alternatives would provide the greatest return for your investment? ›

This is Expert Verified Answer

10.25% compounded quarterly investment alternatives would provide the greatest ending wealth for your investment.

Who is the largest self-storage company? ›

Public Storage is the largest self-storage company in the world, thanks to its 2006 acquisition of European-based Shurgard Self-Storage.

Who Uses self-storage the most? ›

Gen Xers (54%) and baby boomers (51%) are the most likely to use self-storage. Millennials are also showing increased interest at 40%. Living in a spacious home doesn't negate the need for self-storage.

Is self-storage a growing industry? ›

Generational shifts are also informing growth in the self-storage industry. As Baby Boomers permanently leave the workforce, they'll navigate a fixed-income lifestyle against rapidly increasing housing costs. Increased living costs will drive up the demand for storage as more and more retirees choose to downsize.

Why are alternative investments important? ›

Alternatives rely less on broad market trends and more on the strength of each specific investment; hence, adding alternatives can potentially reduce the overall risk of a portfolio. With low correlation to traditional asset classes, alternatives can be a beneficial way to diversify your portfolio.

How do you manage alternative assets? ›

Alternative assets primarily can be segregated into 4 asset classes namely Private Equity, Hedge Funds, Real Estate and Private Debt. Infrastructure, energy and other exotic investments like art are some of the other alternative assets in play.

Who can invest in alternative investment funds? ›

Who Can Invest in an AIF?
  • Resident Indians, NRIs, foreign nationals can invest in these funds.
  • The minimum investment limit is Rs. ...
  • AIFs come with a minimum lock-in period of three years.
  • The number of investors in every scheme is restricted to 1000, except angel funds.
29 Mar 2022

What do you mean by alternative investment fund? ›

Alternative Investment Fund (AIF) is a type of investment fund in India. Investors can use AIF for investing as well as getting benefits. It is a fund of funds that invests in asset classes other than bonds, stocks and cash.

How do I invest in alternative investments? ›

Our recommended approach to investing in alternatives
  1. Start by articulating the goals you have for your portfolio.
  2. Assess how much illiquidity you're comfortable with.
  3. Plan to invest over multiple years.
  4. Build your diversified portfolio—with our assistance (or we can do it for you)

What is an alternative investment platform? ›

Alternative Investments Defined

This includes assets like art, collectibles, startup businesses, hedge funds and venture capital funds, foreign currencies and real estate.

What are the advantages and disadvantages of alternative investments? ›

The Pros & Cons of Alternative Investments
  • Pro: May Not Correlate with Stock Market.
  • Pro: May Have Greater Upside.
  • Pro: Expertise Matters.
  • Pro: May Be More Fun.
  • Con: May Have Tax Headaches.
  • Con: May Be Highly Illiquid.
  • Con: May Have Higher Fees.
  • Con: Less Price Transparency.
11 Jun 2022

Why alternative investments considered risky assets? ›

Risks of Alternative Investments

Alternative investments are more complex than traditional investment vehicles. They often have higher fees associated with them. As with any investment, the potential for a higher return means higher risk.

How much should you allocate to alternative investments? ›

A new study carried out by Dexia Asset Management shows the benefits of allocating 15% to 20% of a portfolio to alternative funds. Finding a good balance between risk and return is the first aim of any investment strategy.

What are the three types of alternative assets? ›

The most common types of alternative investments include real estate, collectibles, commodities, private equity, and derivatives.

What are the common features of alternative investments? ›

Features of Alternative Investments
  • Low correlation with the traditional investments. This may be extremely beneficial to potential investors because the low correlation provides opportunities for portfolio diversification.
  • Hard to determine the underlying value. ...
  • Relatively low liquidity. ...
  • High purchasing costs.

What are investment alternatives give details of any five? ›

Basic investment plan for Goal-based Wealth Creation
GoalBest Investment Alternative
Emergency fundsChit fund + Fixed Deposit + Other Liquid Funds
Child's educationSIP in Blue Chip Stocks + SIP in Mutual Fund
Buying a carRecurring Deposit + Fixed Deposit
Buying houseSIP in Blue Chip Stocks + SIP in Mutual Fund
1 more row
23 Jul 2022

What are alternatives asset class? ›

- Alternative asset classes are investments in asset classes other than stocks and bonds. Investments in real estate, commodities, natural resources, infrastructure and MLPs are all examples of alternative asset classes. Alternative asset classes can be accessed through either liquid or illiquid investments.

Why are alternative investments important? ›

Alternatives rely less on broad market trends and more on the strength of each specific investment; hence, adding alternatives can potentially reduce the overall risk of a portfolio. With low correlation to traditional asset classes, alternatives can be a beneficial way to diversify your portfolio.

Who can invest in alternative investment funds? ›

Who Can Invest in an AIF?
  • Resident Indians, NRIs, foreign nationals can invest in these funds.
  • The minimum investment limit is Rs. ...
  • AIFs come with a minimum lock-in period of three years.
  • The number of investors in every scheme is restricted to 1000, except angel funds.
29 Mar 2022

How do alternative asset managers make money? ›

Generally, they sell products such as mutual funds or exchange-traded funds and manage private accounts for other companies. In exchange for these services, they charge fees that most often represent a percentage of the assets under management.

How big is alternative investments? ›

Alternative investments are poised for growth
YearAlternative assets under management
2016$7.8 trillion
2017$8.8 trillion
2018$9.5 trillion
2019$10.8 trillion
12 more rows
26 Sept 2022

Which of the following investment alternatives would provide the greatest return for your investment? ›

This is Expert Verified Answer

10.25% compounded quarterly investment alternatives would provide the greatest ending wealth for your investment.

How do investors measure the risk related to alternative investments? ›

Investors in alternate investments generally measure risk by analyzing the illiquidity of the asset, the change in preference/demand for a particular alternate asset (wine, paintings etc.).

How do I invest in alternative investments? ›

Our recommended approach to investing in alternatives
  1. Start by articulating the goals you have for your portfolio.
  2. Assess how much illiquidity you're comfortable with.
  3. Plan to invest over multiple years.
  4. Build your diversified portfolio—with our assistance (or we can do it for you)

Which of the following are examples of investment? ›

Types of Investments
  • Stocks.
  • Bonds.
  • Mutual Funds and ETFs.
  • Bank Products.
  • Options.
  • Annuities.
  • Retirement.
  • Saving for Education.

Which type of investment would be an example of an investment at point A? ›

Which type of investment would be an example of an investment at point A? a commodity.

How much of a portfolio should be in alternative investments? ›

If you're talking about alternative investments to diversify your traditional investment portfolio, most investment advisors recommend that no more than 15% to 30% of your portfolio be devoted to alternative investments.

Is Bitcoin an alternative investment? ›

Bitcoin, cryptocurrencies, and blockchain-based technologies getting wider acceptance as alternative investments is nearing. In May 2021, Goldman Sachs declared Bitcoin and other digital currencies as a separate alternative asset class.

How much should I allocate to alternatives? ›

A new study carried out by Dexia Asset Management shows the benefits of allocating 15% to 20% of a portfolio to alternative funds. Finding a good balance between risk and return is the first aim of any investment strategy.

Videos

1. Internalizing Complexity in Solar Industry | Enphase CEO Shares Insights at 2017 Partner Summit
(BayWa r.e. America)
2. I2U2: Partnership for the Future or Prisoner of the Past?
(The Arab Gulf States Institute in Washington)
3. Real Estate Panel: Peak Performance for the Self-Storage Asset Class
(Storage Business Owners Alliance)
4. CES 2021 | Smart Sustainable Homes | Schneider Electric
(Schneider Electric)
5. Stanford Energy Solutions Week 2022 | Innovation Through Collaboration
(Stanford ENERGY)
6. Marketing Alternative Asset Classes with Lauren Brychell
(The Real Estate Syndication Show)

Top Articles

Latest Posts

Article information

Author: Amb. Frankie Simonis

Last Updated: 11/22/2022

Views: 6628

Rating: 4.6 / 5 (76 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Amb. Frankie Simonis

Birthday: 1998-02-19

Address: 64841 Delmar Isle, North Wiley, OR 74073

Phone: +17844167847676

Job: Forward IT Agent

Hobby: LARPing, Kitesurfing, Sewing, Digital arts, Sand art, Gardening, Dance

Introduction: My name is Amb. Frankie Simonis, I am a hilarious, enchanting, energetic, cooperative, innocent, cute, joyous person who loves writing and wants to share my knowledge and understanding with you.