The UK’s £1bn self-storage business boosted by the shortage of rentals

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Running a storage rentals business, supplying and letting space for inanimate objects, as opposed to people, is potentially far more lucrative and a lot less troublesome than operating as a residential landlord.

The UK self-storage industry has grown steadily over the last twenty years or so, with enough stuff stashed away in steel boxes, with locked roller shutter doors, to fill 100 Wembley seized stadia.

Drive to the edge of most towns and you will nearly always find a bunch of brightly coloured self-storage units where domestic and business renters can store their items, out of sight and often out of mind. Yes, one of the great drivers of the trend to self-storing is inertia. People fill up their units with long forgotten paraphernalia, pay their rent painlessly month-by-month by automatic transfer (standing orders), and then forget about it.

There are many drivers of why both consumers and businesses are using self-storage more than before. Domestic needs such as house moves, downsizing, temporary flat dwelling, marriage, divorce, bereavements and inheritance and retirement. Bicycles, motorcycles, small vehicles, classic cars and all manner of domestic and sports items are fair game here. In the case of businesses, self storage often proves useful for storing archived data, old invoices (HMRC demands 7 years of accounting records), stock, office equipment and machinery.  

Self-storage unit’s high visibility, brightly coloured and with centres located on key arterial roads around most towns in the country, helps bring this service to the attention of the business owners and the general public.

Britain’s homes too small

So long as developers build new houses that are too small for their occupants to live with their items stored comfortably, there’s going to be demand for self-storage units. According to the Royal Institute of British Architects over 50 per cent of new family houses in the UK are, in their words, “rabbit hutch” homes, too small for most buyers.

The way that developers pack-in as many homes as possible into a development site, the average new three-bedroom home in the UK is lacking around four metres squared of necessary floor space – that’s equivalent to an extra room. That’s according to a 2015 RIBA report and nothing has changed since then.

A Space Standards for Homes report also found that some family homes are failing so far below recommended space standards, they are essentially squeezing in three bedrooms into a two-bedroom house.

Cheaper than renting a bigger home 

Self-storage units are a lot cheaper than renting, buying a bigger home or extending an existing one, that’s why the regular shuttle between home and storage unit is becoming a family routine in many  households.

Amid increasing signs that shuttling to and from a self-storage facility is becoming a routine part of urban life for hundreds of thousands of people, nearly 70 per cent of customers continue renting these storage units for two years, while nearly 20 per cent stay for at least five years.

Modern consumerism creates endless possessions

Couple the space problem with the way Britons pack away superfluous possessions, and the rate they do this is bolstered by modern consumerism and a sentimental attachment to objects of all descriptions. This includes the paraphernalia surrounding the sport and exercise trend, and it all means that self-storage is forecast to grow by another 10 per cent over the next 3 years.

Retail as well as business usage

The self-storage business has gained from both sides of the online boom. While consumers buy more goods that need storing, there’s a host of new online businesses, the new small-scale retailers. They are online retailers who dispatch products to consumers but don’t have storage capacity at home, don’t have a high street shop, and they find self-storage is much cheaper than renting a commercial building.

Self-storage offers businesses storage space with a minimum of hassle and commitment. Small and even medium companies are now finding these storage facilities give them the flexible storage space they need without having to sign a long-lease. What’s more they can quickly take more or less space easily and quickly. 

There are no utility bills or business rates to pay, space is flexible from as little as one week’s hire, and some facilities offer free fork lifting and delivery acceptance.

Businesses can expand their stock levels as required which is particularly desirable for a business with big variations in seasonal demand. Their costs can be kept down by only using self-storage space when needed, as opposed to the inflexibility and cost of renting a warehouse on a long-term lease.

Where did this all start?

According to the Self Storage Association UK, self storage units first appeared in the United States in the 1960’s and since then the US industry has grown to over 5,000 such facilities across the country.

In the UK the industry started in the early 1980s, initially only in London, but now there are more than 2,00 facilities and growing across the UK, this equates to around 52 million square feet of rentable storage space.

The industry includes some large operators as well as some small-scale and local niche operations developed by local land owners. Farmers in particular have found niche self-storage a profitable business, one in which to diversify their agricultural earnings.

A housing crisis

The high cost of buying and renting a home in today’s housing market, coupled with the shrinking size of  floor space, particularly on new estates and in towns and city centres, underpin the increasing demand for these units.

People living in flats and small properties may acquire items in anticipation of moving into a larger home but have been thwarted by the rising costs of moving, higher house prices as well as increased mortgage costs. 

More people than ever are renting as opposed to taking their first step onto the housing ladder, but rental costs and a severe shortage of suitable rental accommodation is forcing more young people back into their family homes, or living with in-laws. This creates a storage problem for this so-called “boomerang  generation”, and this is where self-storage saves the day.

According to The Guardian newspaper, a 90 sq ft (just short of 10ft by 10ft) self-storage unit will typically set you back around  £270 per month in London or around  £130 in the north of England, far cheaper than renting a residential property.

An industry survey of more than 1,800 UK customers found that the most common reason for using self-storage was a lack of room for the items at home, followed by a house move, major life event such as a death, inheritance or divorce, and renovations. One in five renters are now business customers, often e-commerce retailers.

Security

Security is often an issue in domestic housing. With a bolted and padlocked self-storage container in a self-storage centre, with its own security systems in place, means that items are not only away from cluttering up the home, they are also more secure.

An Investment opportunity for landlords

As an investment opportunity, self-storage offers small-scale niche operators, with a small amount of strategically located land with planning permission. This could very quickly develop into a profitable cash flow operation by renting out small storage units.

According to The Guardian, Big Yellow, the biggest UK operator, with 108 centres, has recorded a 30% increase in adjusted profits before tax in 2022, or £96.8m, while Safestore, the next biggest, increased its revenue by 14% to £213m.

Below is a summary of the findings of The Self Storage Association UK Annual Industry Report 2023. These include data collected from industry operators, business customers currently using self-storage and the general public:

Occupancy maintained at 83.3%.

The UK average net rental rate is £27.19 per square foot per annum, up 4% on last year.

Churn rate has risen slightly but remains below pre pandemic levels at 81%.

Discounts have increased again in 2022 after being lowered in 2021

People renovating their home are 3 times more likely to consider using self storage.

75% of stores allow you to book and pay for unit online

16% of customers have changed how they use self storage as a result of increasing inflation but 68% of them are now using self storage more frequently as a result

41.2% of self storage customers have used self storage previously

33% of operators think 2013 will see a drop in profits

People moving house are 3 times more likely to use self storage

People under 45 are more likely to be short term users while older people keep their unit for much longer.

A death in the family is the most common life event that people use storage for.

19% of customers do not think their storage unit is good value

51% of the public have a good awareness of self storage

39% of customers could have bought more packing materials from their self storage store

32.2% of customers have used self storage before.

View Full Article: The UK’s £1bn self-storage business boosted by the shortage of rentals

More landlords lose properties as interest rates and rising prices hit home

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At least 410 buy-to-let mortgaged properties were repossessed in the first quarter of 2023, 28% higher than in the previous quarter – the highest level since the start of the pandemic.

UK Finance reports that 970 buy-to-let mortgages fell into arrears during the same period as higher interest rates and cost-of-living bite.

There were 7,030 BTL mortgages in arrears of 2.5% or more of the outstanding balance, 16% higher than in the previous quarter. Of those, 3,420 were in the lightest arrears band (representing between 2.5 and 5% of the outstanding balance) which was 33% greater than in the previous quarter.

Faster rate

It appears that buy-to-let mortgages in arrears are increasing at a faster rate than residential mortgages, according to the banking industry body, which adds that percentage increases can look large when there is a low base. “Similarly, buy-to-let mortgages in early arrears increased 33% from the previous quarter, an increase of 850 mortgages. While these numbers are small, lenders know that people are worried about their finances. This is why buy-to-let landlords are offered the same tailored forbearance and proactive support from their lender.”

Exit market

Lee Grandin at Landlord Mortgages fears landlords may decide to exit the market only to wish, in hindsight, they hadn’t. “I am sure landlords are already concerned and will be looking at ways to improve their position such as selling, increasing rents or re-mortgaging,” he tells LandlordZONE.

Grandin adds that lenders seem willing to offer an increasing number of five-year fixed rate buy-to-let mortgages where the interest rate is kept low by adding a large fee to the loan. “In five years when these loans mature the landlord will have a bigger loan balance than today. Maybe lenders are confident that in five years’ time the landlord will be better positioned and that rising interest rates is a storm that will simply blow over.”

View Full Article: More landlords lose properties as interest rates and rising prices hit home

Green mortgage aims to make an impact on BTL investors

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Buy-to-let landlords could add the cost of making properties more energy efficient onto their mortgage in an initiative to make more UK homes greener.

Ashman Bank will design and run the trial for PRS investors who would be able to borrow the money for improvements and include it in their monthly repayments. Under the new variant – Impact Buy to Let – it would assess a property’s energy efficiency, provide options on how it can be improved and incorporate the cost of carrying out the work onto the duration of the mortgage.

Loft insulation

It is one of 26 innovative green finance projects sharing £4.1 million worth of funding from the Department for Energy Security and Net Zero. Each aims to encourage homeowners to make their properties more energy efficient with measures such as loft insulation and double glazing and help them save more than £460 a year on their energy bills, according to the government.

Another trial initiative run by Energy Saving Trust Enterprises will explore a Pathways to Green Finance service aimed at those in the PRS looking to retrofit homes. After six months the firms can apply for more funding to run a pilot scheme.

Reduce bills

Lord Callanan, Minister for Energy Efficiency and Green Finance, says it has put in place long-term commitments to ensure homes across the country have greater energy efficiency to reduce bills, drive down energy use and lower emissions. He adds: “We are supporting these organisations to develop fresh and innovative ways of helping more people get better access to energy efficiency measures, such as loft insulation, double glazing and heat pumps.”

Landlords are still waiting for confirmation that the proposed date for meeting EPC band C has been delayed until 2028, with increasing numbers opting to sell up instead.

View Full Article: Green mortgage aims to make an impact on BTL investors

Hybrid LLP Action Group Motives

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Mark Smith, Head of Chambers at Cotswold Barristers said …

“This (the Hybrid LLP Action Group) is not a knee-jerk reaction or an attempt to undermine other advisers’ work for the sake of it. 

The Hybrid LLP Action Group arises from a number of landlords approaching us with concerns about the robustness of their structures and the correctness of the filings at HMRC and Companies House made in their names.

View Full Article: Hybrid LLP Action Group Motives

Landlord Crusader: Section 21 abolition – congratulations to Shelter et al

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And so, it came to pass – section 21 notices to gain possession of a rented property will be no more and there was only the wailing of landlords that could be heard.

So, I guess, congratulations to Shelter and Generation Rent and all the others on a media campaign that focussed on the vilification of landlords over recent years.

View Full Article: Landlord Crusader: Section 21 abolition – congratulations to Shelter et al

Tenant will not let anyone into property?

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Hello, Can anyone from the Property118 community please offer me any advice? My tenant has not paid for a year (Don’t ask, that’s a whole other story!) and the gas and electric certificates are due but the tenant will not let anyone into the property or answer any communications directed to her at all!

View Full Article: Tenant will not let anyone into property?

Greens want rent freezes as part of the Renters’ Reform Bill

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The Green Party is calling for the Renters’ Reform Bill to go much further than the government is planning for – and says there should be an ‘immediate rent freeze’.

The party is also urging for councils to get the power to implement rent freezes where they might be necessary.

View Full Article: Greens want rent freezes as part of the Renters’ Reform Bill

Reform Bill: Landlord database to be enforced with court orders

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A new ombudsman – known as the landlord redress scheme – and property portal would be compulsory for all private sector landlords.

Part of the Renters (Reform) Bill, the redress scheme or schemes will have the legal authority to compel apologies, take remedial action and pay compensation and, according to the government, will provide fair, impartial, and binding resolution to many issues and prove “quicker, cheaper, and less adversarial than the court system”.

Any decision under the scheme would be made enforceable as if it were a court order.

Finer details

Sean Hooker, head of redress at Property Redress Scheme, tells LandlordZONE that although the government is still working out the finer details, the initiative should help address the gap in dispute resolution for tenants whose landlords do not use an agent or where the issues fall under the obligations of the landlord and not their agent.

Meanwhile, the private rented property portal would help landlords “understand their legal obligations and demonstrate compliance, alongside providing better information to tenants to make informed decisions when entering into a tenancy agreement,” according to the government. It aims to support local councils by helping them target enforcement activity where it is needed most.

Correct technology

The PRS’s Hooker believes a portal should help landlords and agents understand and comply with their obligations. “Of course, the caveat is that the technology is correct and the process of registering and complying is straightforward and affordable and we await the details of how this will be achieved in a realistic timescale as it is the lynchpin of so much of the other reforms proposed,” he adds.

Fears have long been voiced about local councils’ ability to carry out further enforcement when budgets are being cut. The Local Government Association believes improved access to data on the PRS and mandated landlord registration will increase councils’ oversight of and ability to enforce against the small minority of landlords guilty of criminal behaviour.

Housing spokesman Darren Rodwell adds: “The LGA will continue to work with the government to ensure that councils have the right powers, skills, capacity and resources to undertake effective enforcement activity to improve standards in the private rented sector.”

View Full Article: Reform Bill: Landlord database to be enforced with court orders

Enforced landlord registration part of plan to help sector shape up

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A new ombudsman – known as the landlord redress scheme – and property portal would be compulsory for all private sector landlords.

Part of the Renters (Reform) Bill, the redress scheme will have the legal authority to compel apologies, take remedial action and pay compensation and, according to the government, will provide fair, impartial, and binding resolution to many issues and prove “quicker, cheaper, and less adversarial than the court system”. Any decision under the scheme would be made enforceable as if it were a court order.

Finer details

Sean Hooker, head of redress at Property Redress Scheme, tells LandlordZONE that although the government is still working out the finer details, the initiative should help address the gap in dispute resolution for tenants whose landlords do not use an agent or where the issues fall under the obligations of the landlord and not their agent.

Meanwhile, the private rented property portal would help landlords “understand their legal obligations and demonstrate compliance, alongside providing better information to tenants to make informed decisions when entering into a tenancy agreement,” according to the government. It aims to support local councils by helping them target enforcement activity where it is needed most.

Correct technology

The PRS’s Hooker believes a portal should help landlords and agents understand and comply with their obligations. “Of course, the caveat is that the technology is correct and the process of registering and complying is straightforward and affordable and we await the details of how this will be achieved in a realistic timescale as it is the lynchpin of so much of the other reforms proposed,” he adds.

Fears have long been voiced about local councils’ ability to carry out further enforcement when budgets are being cut. The Local Government Association believes improved access to data on the PRS and mandated landlord registration will increase councils’ oversight of and ability to enforce against the small minority of landlords guilty of criminal behaviour.

Housing spokesman Darren Rodwell adds: “The LGA will continue to work with the government to ensure that councils have the right powers, skills, capacity and resources to undertake effective enforcement activity to improve standards in the private rented sector.”

View Full Article: Enforced landlord registration part of plan to help sector shape up

Sector braces itself for proposed challenging notice periods

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Tenants could effectively move in and give notice the same day under proposals in the Renters (Reform) Bill.

The draft legislation scraps assured shorthold tenancies in favour of periodic tenancies, while rental periods can only be 28 days or one month. Tenants will be able to stay until they decide to end the tenancy by giving two months’ notice or the landlord can evidence a valid ground for possession. Landlords won’t be able to use grounds for moving in, selling or redevelopment for the first six months of the tenancy.

Shorter notice

Property lawyer at JMW, David Smith, explains that notice periods are likely to be the change that most substantially alters the sector on a day-to-day basis. “It has implications for short letting, for agency fee models, and for how landlords set rents,” he says.

Landlords will be fined by local authorities if they try to give tenants a fixed term tenancy longer than a month, while they face a fine if they fail to give their tenant a new written statement that includes a record of terms. “This will be a risk area for a lot of landlords and agents but in reality, it brings England into line with the other parts of the UK,” adds Smith.

Potentially contested

In a move to combat the cost-of-living crisis, rent increases will be limited to once a year and the minimum notice landlords must provide of any change in rent will be increased to two months using a section 13 notice, which can be potentially contested before a tribunal.

However, there is no detail in the Bill about how these changes would affect student landlords who fear open-ended tenancies mean they won’t be able to guarantee accommodation will be available for the start of each academic year, unless sitting tenants have handed in their notice to leave.

NRLA chief executive Ben Beadle says the government must recognise these serious concerns. “Without the ability to plan around the academic year, students will have no certainty that properties will be available to rent when they need them.”

View Full Article: Sector braces itself for proposed challenging notice periods