By RK Kliebenstein
London is a city of 5 million people. With that kind of population, in a land area of just a few hundred square miles, you have the first and foremost ingredient of a successful self-storage project: density! The second ingredient for success is small living and business quarters. If London makes you think of those tiny cars, it is for good reason. The streets are narrow and the houses tightly packed. Businesses are in very close proximity, and even when you get into the "country," the area closely resembles New Jersey (even down to the weather).
The biggest challenge facing self-storage developers in London is product acceptance. There is a need to educate the general public on the uses of self-storage. While he knows he needs more space, the average consumer does not know there are firms that specialize in solving his space challenges. But it's just a matter of time. Estimates show that self-storage spaces per capita in London are less than 5 percent of what they are in the United States. If that's not a market waiting to happen, I don't know what is.
There are some familiar faces in the London market: Shurgard (also making a big splash on the Continent) and a cousin company to Storage USA. The obvious absence of Public Storage and U-Haul is a mystery. (I attempted to contact U-Haul to learn of its plans in England and Europe, but I did not receive an answer. Maybe there is an answer to the mystery question they don't want to share.) In London, there are other big names such as Safestore, Access, Mentmore Abbey and Big Yellow.
Developers face the problem of finding good sites. The race is on, and acquisition guys are combing the streets looking for the next self-storage location. Conversions are the most popular, given the density and maturity of the real-estate market. One of the challenges is there just are not that many 100,000-square-foot buildings available for conversion. And three to five acres of available land? Fuhgetaboudit!
One of the fastest growing and leading firms in London is Safestore. Chairman Philip Lewis was kind enough to share some thoughts with me on the London market:
RK: Mr. Lewis, please describe the current state of affairs of self-storage in London. Can you particularly address occupancy levels in mature stores?
Lewis: Although self-storage has been in London since the 1980s, it was originally located in back-street industrial property, and it is only in the last four to five years that the new operators have started to develop self-storage in high-profile, main-road sites. Naturally, the potential customer base is huge and quite sophisticated, so most operators are looking to expand in the Southeast, within the M25 motorwary network, although others are looking further afield.
Typically, sites are about 40,000 square feet or larger, and although one or two new developments are taking place, the majority of sites are in older buildings that have been refurbished. A number of well-branded operators are in town, including, of course, Shurgard. At Safestore, we have a number of mature sites that have been open for three or four years--particularly Notting Hill Gate, Fulham and Acton in western London, plus Alexandra Palace in northern London, where occupancy levels are comfortably over 90 percent and we have an opportunity to push up our rates significantly.
RK: What are rental rates like in London?
Lewis: Typically, in our good London stores, rentals are comfortably more than 20 pounds per square foot on an annual basis. For example, a 50- or 100-square-foot unit earns about 75 to 122 pounds per month. Elsewhere in the U.K. rates are not as high, but we are managing to achieve averages of about 17 pounds per square foot across our portfolio of 21 stores. [As of June 15: 20 pounds = $28.05; 75 pounds = $105.17; 122 pounds = $171.08; 17 pounds = $23.84.]
RK: Tell us about Safestore. How big a company is it? How did you get started? What are your future plans?
Lewis: Safestore is one of the fastest-growing self-storage companies. I joined the company about a year ago, having spent most of my working life in the direct real-estate business. Location is one of the key criteria for growth, and finding the right real estate is a fundamental part of our expansion program. I would urge you to look at our website, www.safestore.co.uk, to find out more about the company.
We have 31 assets, 21 of which are currently trading, and the remainder are due to open over the next 12 months. In general, we own most of our buildings freehold, but we have now started to look at a few leasehold opportunities, and anticipate the portfolio will comprise of two to three freehold and one to three leasehold properties as we develop. Our minimum requirement now is for sites of at least 35,000 square feet of net self-storage accommodation in central London areas, and up to 40,000-45,000 square feet a little further out of town.
As a publicly quoted company, we have a number of interesting shareholders. The largest is Soros Real Estate Fund, controlling 25 percent of the equity, followed by a range of blue-chip U.K. institutions and private investors. It is our intention to become one of the largest [self-storage companies] in Europe, with a current target of having 50 stores trading by the end of 2003. We have already acquired our first building in continental Europe, in Paris, that we hope to open in the next few months. We'll then look closely at other countries as the business grows.
RK: I understand you have announced a couple of strategic alliances to grow your company. Can you tell us about them?
Lewis: In addition to our organic expansion, we have also tied up a number of alliances with quality operating partners. First, we concluded a transaction last year with National Car Parks, the United Kingdom's largest car-park operator, to develop self-storage inside their car parks, primarily in central London. Subsequently, we tied up a further joint operating partnership with Moves, an extremely well-branded removal business based in London. Through that company we do pickup and delivery, and removal business. We are just about to announce a free pickup service for Safestore customers as well as use of the Moves vehicles, which are now jointly branded Safestore/Moves.
Our most recent success on the joint-venture route was a tie-up with Railtrack's subsidiary, Spacia. Railtrack is the United Kingdom's principal railway company and also one of the largest landowners in England. We have already identified a number of sites to operate jointly in London and the Southeast, and this should provide us with much quicker access to available land and buildings to speed up our expansion program.
RK: Can you give the American operators some advice about getting involved in the London market? Should they get involved and, if so, how should they approach the market?
Lewis: Self-storage is gathering pace in the United Kingdom, and two American operators are already here. Shurgard and Access (which is a subsidiary of Security Capital) are developing alongside a number of domestic companies, and we expect there will be significant growth over the next three to five years. We have consulted with a number of advisors in America and intend to recruit from the United States, particularly for sales, marketing and staff training to ensure we stay well ahead of our competitors.
I am convinced self-storage will grow in the same way as other concepts that have traveled across the Atlantic: Health and fitness clubs, McDonald's, coffee shops, and toy and pet retailing have all seen tremendous changes over the last 10 to 15 years, and I see the same phenomenon happening in self-storage. We are excited about the prospects of Safestore.
RK: One final question for you: Which use is more proper? The United Kingdom? England? Great Britain?
Lewis: (Shrugs).
It's still a mystery, I guess.
RK Kliebenstein is president of Coast-To-Coast Storage, which is preparing to announce a strategic alliance with an existing firm in the United Kingdom that will bring feasibility-study services to the European market. The company is forming several relationships that will allow U.S. firms to gain access to European self-storage expansion. For more information, call 561.367.9241.