Understanding self-storage investing: A comprehensive guide

The self-storage industry has enjoyed exponential growth, and is estimated to be worth $20 billion across Australia and New Zealand. 

It was one of the industries to benefit during the pandemic, with record performance in 2021 as workers shifted to work-from-home arrangements. 

Here’s how self-storage investment fares, how it works, the benefits, investment strategies and financial considerations.

What is self-storage investing?

Self-storage investing involves buying or developing a purpose-built self-storage facility, where individuals or businesses can rent secure, private storage space in various sizes to store their belongings. It’s often a long-term investment held for decades, with reasonable barriers to entry due to high land costs for new developments. 

Companies such as National Storage, Kennards Self Storage and Storage King lead the way in Australia. There is also growing interest among offshore buyers, with Singaporean company StorHub recently expanding into Australia.

Storage facilities can store household items, vehicles or business inventory for a short or longer term, often in a month-to-month arrangement.

Owners of storage facilities benefit from diverse revenue streams, including the rental income itself and optional extra services such as 24/7 access, insurance, individually alarmed units, and moving services and supplies such as forklifts, boxes and locks, plus truck, ute, van or trailer hire. 

The different types of self-storage units include climate-controlled, outdoor drive-up, indoor and mobile storage, which are all accessible via pin codes, biometrics or keys.

Types of self-storage units

Climate-controlled storage, or humidity-controlled storage, is used for various products that require a little more TLC to extend their shelf life, from wine to pharmaceuticals, or special pieces of furniture. 

Drive-up storage or outdoor storage is accessible by car and provides a temporary home for a car, van, boat, caravan, motorbike, scooter or jet ski. It enables you to clear space at home when it’s not being used.

Indoor storage is, as the name suggests, undercover and comes in a range of sizes from extra-small lockers to extra-large units. Facilities are increasingly taking the form of multilevel warehouses, particularly in urban areas.

Mobile storage is the newest concept to hit the market, and is designed to be ultra convenient as the storage box is delivered to you. Once packed, it is picked up and stored at a secure facility, or moved to your new address. 

How does self-storage investing work?

When investing in self storage, there are two main ways to get involved: acquisition and developing your own facility. Consider population growth, urban density and local business activity, as well as operational costs before you decide which way to go. 

Experts point out there are some barriers to entry – including site availability, land cost, development and construction costs, and the time it takes to reach a sustainable occupancy.  Established facilities and portfolio sales attract a premium price.

Acquiring an established self-storage facility

Investors seeking immediate cash flow and lower risk can acquire a facility, which all have their own advantages and disadvantages. Facilities may range in cost from a few million dollars into the tens or hundreds of millions. 

Advantages include avoiding construction costs and time and being able to generate immediate cash flow as rents will start rolling in after settlement, and banks will look more favourably when signing off on a loan after reviewing proven revenue. Buyers can also take advantage of the previous owner’s marketing, swooping in to take over its market presence and loyal customers. 

Challenges include acing the due diligence. You’ll need to be forensic as you pore over existing contracts, maintenance history and occupancy rates. If you’re looking at taking over a well-performing facility, expect to pay higher initial costs. Make sure your business plan is top notch so you can sniff out the market competition; don’t buy if demand has already been met in a particular market as growth will be stagnant. Technology is important too, and older properties need upgrades to stay relevant so factor in renovation costs.  

Developing a new self-storage facility

When developing a new facility, finding a suitable piece of land with the right zoning on which to build. This might suit experienced investors who want to maximise their returns in underdeveloped markets or high-demand areas.

Advantages include being in charge of your design vision so you can include all the mod cons, and hit the ground running with more advanced security and climate control. You can target potential growth locations and hit them before any competition, and when you nail your location, you can let the higher returns flood in as you’ll be able to charge a premium. Don’t forget to get your accountant to look into any tax benefits you can take advantage of, such as depreciation.

Challenges may include having to fork out for high initial costs, which can blow out when you’re paying upfront for land, construction and even permits, and patiently waiting for the facility to start bringing in the bacon. They can often take months or even years to generate income, if you’re lucky and have forecasted your market risks correctly. As with any new build, you’ll have to navigate zoning, environmental impact assessments and permits, which can be prone to delays.

How do investors lease individual storage units to customers?

Once you’re up and running, you’ll be faced with pricing decisions, while attractting and managing customers, and ensuring the facility is clean and secure.

Your potential customer will most likely be sitting at their desk googling “self-storage near me”. If you’ve nailed your website’s SEO, they’ll find you and can compare sizes, prices and features on an easy-to-use site – by now, you’ve won half the battle. In regional areas, local traditional advertising through leaflets is still common, and a letterbox drop in student-populated areas will let them know you’re open for business.

Investors may see their clientele arrive on the doorstop in person, or sign up online. They will compare your rental sizing and pricing options, such as month-to-month hire which gives them more flexibility, or they may want to sign on for a year, or longer, especially if they’re moving interstate or overseas. 

After signing a rental agreement, tenants may pay a refundable deposit, and a monthly rental fee dependent on the size of the locker or unit. Automated payments are common for convenience, and provide a consistent monthly revenue stream.

The next stop involves providing your customer with a physical space they can call their own, and giving them a way to access it, ranging from handing over keys to setting up fancy biometric systems.

Once all the basics are sorted, you can add extra revenue streams like insurance or services to help them move or unload like boxes, bubble-wrap and tape. Some places offer free vans and forklifts to help when it’s time to arrive or leave.

Ongoing, you’ll provide customer support for any issues and inquiries and sit back and enjoy the steady monthly income and high-turnover flexibility so you can gear up or down rates and policies quickly based on demand, and expand or upgrade as needed.

Self storage offers diverse income streams

As an asset class, self-storage is appealing for investors because it offers revenue stream diversification, but high occupancy rates and operational efficiency are key to profitability.

The steady trickle of rental income – dependent on size and location – is bolstered by late fees, which are charged when the account is not paid on time, of a fixed amount or a percentage of the standard monthly fee. 

Thanks to the flexibility of monthly contracts, investors can change pricing as market conditions or seasonal demand fluctuate. Admin setup fees, upgrades to premium services like high security, greater access or temperature-control can also provide another boost to the coffers. Of course there’s the already-mentioned additional insurance, packing supplies and moving assistance on offer too.

In the event a client defaults on payments, goods held can be auctioned to create more revenue and help cover the loss of payment.

Is self-storage a growth industry?

More than 40 per cent of Australian households reported moving within the last five years, according to the latest census data, meaning somewhere along the way, belongings needed to be re-homed, or put somewhere to deal with later.

In Australia there is increased supply, with 2543 self-storage facilities, housing 573,000 storage units across more than $5.85 million square metres of net storage area, according to the sector’s peak body, the Self Storage Association of Australasia (SSAA).

SAA chief executive Makala Ffrench Castelli says the sector is not only thriving, it is expected to experience record levels of new supply over the next three years.

“Despite cost-of-living pressures and a slower property market, the self-storage sector continues to demonstrate remarkable stability,” she says. “With over 250 new self-storage developments worth $2 billion in the pipeline, the industry’s long-term outlook remains optimistic.”

The SSAA released its biennial State of the Industry 2024 report this month, providing analysis of the self storage sector’s performance and outlook. Significant growth underpinned by strong fundamentals, innovation and evolving consumer demands characterise the sector. The strong year follows two years of reduced activity in the self-storage sales, after it peaked during the pandemic in 2021.

It’s a tightly held market with fierce competition for prime markets, and new investors are hungry to break in while established businesses look to their next growth phase, teaming up with capital groups. 

This year, transaction volumes rebounded due to strong investor appetite, stable capitalisation (cap) rates and a reset of vendor expectations around trading conditions. Industry consolidation continues though the sector, with independent operators retaining the largest market share at just over 50 per cent of net storage area,  the SSAA found.

Average occupancy rates have come under pressure this year, but remain high at 87 per cent. Average annual storage fee rates of $385 a square metre reflect a resilient industry set for stabilised growth.

Benefits of self-storage investing

Compared with the myriad issues that residential property owners face, upkeep on a commercial property is minimal. 

Thanks to the nature of their exoskeleton, storage containers are simple structures that reduce maintenance costs, and they have less wear and tear because they house inanimate objects rather than humans who can damage an oven, flood a bathroom or paint over a wall. Staffing is based around mostly automated operations, reducing the need for high levels of people power.

High demand for storage solutions in urban areas

There’s growing demand for storage solutions, particularly in urban and densely populated areas, thanks to overseas and interstate migration,and the ongoing housing crisis.

An increase in demand is expected as interest rates ease in 2025 and the housing market recovers, boosting turnover and listings which are key demand drivers for self storage, according to the SSAA.

“Sustained population growth, migration and people moving house will all play pivotal roles in increasing demand,” Ffrench Castelli says. 

“The continued decline in dwelling sizes, rising apartment approvals and changes in the way we live and work are all structural drivers that will continue to positively impact demand for self storage.”

A diverse customer base

Individuals, businesses and students are potential clients, with awareness of the self-storage offering remaining high across Australia, at around 81 per cent of the total adult population, according to SSAA’s industry report.

However, Ffrench Castelli says there is higher awareness and usage in the US and UK compared to Australia and Asia, where living spaces and property models differ.

Ray White Commercial head of research Vanessa Radar says Gen Z users are among the larger occupiers due to changing housing trends. People are reducing their housing footprint due to increased rents and residential housing values, and having less space to put their belongings.

During the boom in remote working, people cleared out unused cars in garages to make room for desks and gyms, plus side hustles grew on sales platforms like Facebook Marketplace, Instagram and Depop, increasing the need for storage.

Downsizing (or divorcing) Baby Boomers are another group of major users, not ready to let go of antique furniture and heirlooms. This group also stores boats, cars and other luxury items accessed irregularly.

Top reasons to use self-storage

The most compelling benefits to using self storage includes removing clutter (68 per cent), securing items (62 per cent), and flexible storage (47 per cent), the SSAA report states.

Storage for home renovations and property improvements has remained steady at 34 per cent, while storage of sentimental items has grown from 32 per cent in 2022 to 39 per cent in 2024.

“Consumers are seeking more than just space — they’re looking for security, flexibility and convenience,” Ffrench Castelli says. “This is especially evident in the increasing overlap between personal and business storage needs, presenting operators with new opportunities to innovate and capture this growing market segment.”

Business storage is on the rise, with demand shifting from the retail sector to the trade economy, the SSAA found. Businesses may upsize or downsize, using storage for a range of commercial operations, from excess stock to inventory and archiving paper, and even as last-mile distribution points for parcels.

Renting storage space is cheaper than renting new office or warehouse space, after all, and is used widely among e-commerce businesses.

Another market segment is Millennials and university students who live away from home in shared dormitories and housing and need to store their goods during summer and winter breaks. 

International students or those living away from home often relocate temporarily for a few months during summer breaks, or move from apartment to apartment and need to store sports equipment like bikes that don’t fit in small spaces, or textbooks, until they return. 

This younger audience particularly demands a high-tech experience, and the sector is embracing technology to meet shifting consumer expectations.

Twenty-five per cent of facilities across Australia and New Zealand are already remotely managed. Demand is so strong, that 50 per cent of operators plan to enhance their technology and automation capabilities within the next year.

“Customers are demanding seamless digital and physical experiences,” Ffrench Castelli says. “While online research and sign-ups are growing at pace, the human touch remains important. The challenge for operators is to blend technology with personalised customer experiences effectively.”

Investment strategies in self storage

Buying and managing a facility through direct ownership

Direct ownership is ideal for hands-on investors with real estate management experience.

Whether you buy a facility and hire a management team or manage it yourself, the strategy involves keeping on top of operations, tenant management, marketing and maintenance. It’s a matter of weighing up the pros and cons.

Pros

Potential for high returns, property appreciation and consistent cash flow, with control over how you run your business from pricing to customer service.

Cons

It’s a roll-up-your-sleeves-and-get-to-work approach with a decent time investment required to manage the property, and high upfront capital expenditure.

Investing in self-storage through publicly traded companies

REITs offer a low-maintenance and diversified option for those seeking passive exposure to the self-storage market. Self-storage REITs are publicly traded companies that own and manage self-storage facilities. Investors can buy shares in them and receive benefits without directly owning the assets. Some examples of publicly traded self-storage REITs include Public Storage and Extra Space Storage, both major players in the US. In Australia, National Storage REIT (NSR on the ASX ticker) is another prominent example. It’s the largest provider in Australia and New Zealand with more than 235 centres, and it continues to invest in urban and regional centres through acquisitions and developments. It reportedly has a market cap of $3.26 billion.

Pros

REITs are at home on the stock exchange, which makes them a high liquidity asset, compared with direct ownership. Diversification is another benefit, as investors spread risk across various asset classes, as they own multiple properties in different locations. REITs also require much lower entry costs.

Cons

The stock market is a volatile beast, so REITs have to ride market fluctuations, which impacts value and returns. Investors also have no control over management decisions.

Partnerships: Collaborating with other investors or firms

Joint-venture partnerships are ideal for hands-on investors who love to collaborate, pool resources and reduce individual risk while benefiting from combined expertise. It works when multiple partners combine their resources to purchase and manage a self-storage facility, be it an equity or operating partnership. Let’s take a closer look at the pros and cons.

Pros

The financial burden is minimised when you share the load of resources, along with the risk. Partnerships allow for expertise pooling where one person can take on the finances, and the other the management. Scaling up is easier too, as capital is shared, making it easier to invest in larger facilities.

Cons

Naturally, if investment is shared, profits are shared which dilutes the pay packet, but does buffer losses. There can be tricky discussions when joint ventures aren’t structured well, leading to conflict over operational decisions, exit strategies and profit distribution.

Financial considerations

Initial investment costs

 The cost of acquiring a self-storage facility can range anywhere from a few million into the tens or hundreds of millions. It varies considerably by asset type, location and market. 

Ongoing expenses

While requiring less maintenance compared to other real estate, repairs to unit doors, roof and access points, as well as landscaping, is needed from time to time. 

Property taxes can be significant in high-value locations, and insurance for the site and liability is essential. Plus there are expenses for utility bills and technology ranging from lights and CCTV to automated gates and climate control. Ongoing marketing costs set you apart from your competition, and don’t forget outsourced management fees, which take a percentage of gross revenue.

Expected ROI and factors influencing profitability

Just how profitable is a self storage facility when offering a return on investment (ROI)? 

When looking at the market yield on asset performance, the range is generally between 5 per cent and 6.5 per cent depending on the asset type – though it’s sharper for prime assets, and sits more towards mid-6 per cent for secondary assets, Ffrench Castelli says.

Strong growth in average monthly rents has been recorded over the past five years. Looking at customer rental rate growth, one self-storage operator, StoreLocal, enjoyed a 10 per cent-plus yield as it rolled out locations around Australia.

Profitability hangs on occupancy rates, and how well a centre is managed. It’s influenced by competition, demand, pricing and customer retention strategies. 

Self-storage outlook: Stable growth amid a surge in supply

The Australian self storage industry has outperformed traditional property asset classes in recent years and it continues to mature, driven by a mix of traditional strengths and innovative practices, according to the SSAA.

The self-storage sector in Australia is poised for unprecedented growth, especially along Australia’s east coast from now to beyond 2027, the SSAA forecasts. Discretionary spending has been on ice due to the cost-of-living pressures but is projected to improve as interest rates decrease, supporting future demand. The subdued housing market is forecast to recover alongside rate cuts next year, boosting turnover and listings, which are key demand drivers.

In 2024 alone, 35 new self-storage developments were completed, with another 62 facilities slated for construction next year. An additional 164 projects in earlier stages of development, mostly in the east-coast area, which could collectively deliver more than $1.3 million square meters of additional net storage space.

Despite short-term caution in certain markets, predominantly due to new supply, operators remain optimistic about the future, with 60 per cent forecasting improved financial performance and 40 per cent planning to increase capacity or undertake further development within the next year.  Seven in 10 customers likely to use storage in the next two years expect a digitally enhanced experience.