By Sara Seddon Kilbinger, Senior Reporter, REFIRE
Self-storage is no longer viewed as a niche asset class
Self-storage facilities have moved into the mainstream in Germany as investors wise up to its stability, according to Russell Jordan, CEO of Space Plus.
‘Germany was the last big country to conquer for self-storage in Europe,’ he told REFIRE. ‘It used to be classed an as alternative asset class but not anymore. It’s become a core asset in its own right, there’s an avalanche of people looking at it. I’ve been through two recessions and a global pandemic with self-storage and it’s been the best performing asset class for us, it’s not recession-proof but it’s recession-resistant.’
Space Plus was established in February 2021 by private investment group MARCOL and the alternative investment firm Angelo Gordon, as a joint venture for the German self-storage market: ‘By the end of this year, we’ll have closed around 20 stores in Germany, representing an investment of €200 million,’ Jordan said. ‘A lot of them are in North Rhine-Westphalia. ‘We want to invest up to €250 million in Germany by the end of next year, so we have to find five investments or so next year.’
They are currently in the process of finalizing a deal in a Top 5 city, according to Jordan: ‘It’s a former department store that has been empty for two years. We talk to the cities, we have a dialogue, we ask what they need and come up with creative solutions. This one will have a retail pop up, others have a music practice room because there are rules about making noise at night in a residential building, so where are you supposed to practice?’
Space Plus focuses its acquisitions on primarily retail and commercial properties, in highly visible locations. The aim is to build a sector-leading self-storage brand in Germany, a country where market penetration is still low, applying state-of-the-art technologies and hybrid staffing solutions.
However, conquering Germany has not come overnight: ‘We first looked at Germany in 2005 but decided it wasn’t for us then,’ Jordan said. ‘It starts with population density and mobility – people don’t move as much here, they live in a house for 40 years. That has changed, many young people have already moved 2-3 times more than their parents.’
New technology is also changing the way they do business: ‘We’ve got large stores of 10,000 to 12,000 square metres but we’re also experimenting in smaller inner-city locations,’ he said. ‘We have a store in a shopping arcade in Krefeld, Düsseldorf, that they didn’t know what to do with but it’s a great example of repurposing. We put in an unmanned digital store – five years ago, the technology wasn’t there.’
In November last year, the company acquired acquired competitor Rentabox24 as part of its ongoing expansion plans and other similar deals could be on the cards, according to Jordan: ‘We see more consolidation opportunities going forward,’ he said.
Intriva Capital launches SpaceGenie
Other investors are joining the fray. Last week (8 August), London-based Intriva Capital launched its German drive-up SpaceGenie in a bid to create one the largest self-storage platforms in Germany.
The new company plans to build and operate more than 50 self-storage facilities across Germany. SpaceGenie has already acquired, via funds managed by Intriva Capital, its first sites. By the end of 2022, the new company aims to have acquired a minimum of ten sites located across the Rhine-Main Neckar area. With building work due to start soon, SpaceGenie’s drive-up self-storage platform will total more than 250,000 lettable square metres by the time of stabilization in main urban centres and metropolitan hubs across Germany.
‘The growth of e-commerce and flexible working during the pandemic, combined with new housing developments prioritising living space at the expense of storage and people moving more often, has accelerated the demand for self-storage in Europe’s largest economy,’ said Simon Finn, managing partner at Intriva Capital. ‘As the first institutional-quality drive-up self-storage platform in Germany, SpaceGenie will be uniquely positioned to meet the growing demand for storage from small and medium businesses as well as private consumers.’
Self-storage capacity in Germany significantly trails the UK, despite similar tailwinds driving demand. According to the German Self-Storage Association, there were only 297 self-storage facilities in the country in 2021, compared to 1,997 in the UK. This translates into just 3.5 storage facilities per million population versus 29 per million population in the UK.
Drive-up self-storage units can be accessed by customers directly from their cars. They are easier to build and operate than core self-storage facilities. Intriva forecasts that demand for drive-up from small and medium businesses as well as private consumers will increase at a faster rate than core self-storage.
Juergen Hobrecker from Intriva Capital will become head of Business Development and assume key responsibilities including corporate, product and real estate development and management. Boris Gold, joins SpaceGenie as head of Operations from PRIME SelfStorage GmbH, a German owner and operator of core self-storage locations.
Heitman upping exposure to self-storage in Europe
Other big international investors are also upping their exposure to self-storage assets. Last month, global real estate investment management firm Heitman announced an investment in U Store It, an Irish and Northern Irish self-storage business with six existing locations across four cities: Dublin, Belfast, Cork, and Waterford. As part of the investment, the joint venture will work with the existing local owners to develop two additional sites in Dublin and Belfast. Heitman’s investment was made in connection with its global investment strategy.
‘This is further evidence of Heitman’s long term commitment to the European region, and more specifically to our extensive expertise in operational real estate,’ said Tony Smedley, Heitman’s managing director and head of European Private Equity. ‘Such capability ensures we can continue to originate attractive opportunities, grow our clients’ investments, and expand our reach across Europe.’
Heitman, an investor in self-storage since 1996 with more than $7 billion in self-storage assets across the globe including recently purchased self-storage platforms in the UK (Space Station) and Germany (All Seasons), plans to work with U Store It’s leadership and local teams to reinforce the platform’s strong operations and continue its expansion across Ireland and Northern Ireland. Earlier this year, Heitman announced the first close of its European value fund. The fund has a target fund size of €350 million and will focus on the alternative property sectors across Western Europe including opportunities in self-storage, rented-residential, senior housing, and student housing.
‘The closing of this fund marks our fifth successful fund launch since the beginning of the pandemic,’ said Heitman CEO Maury R. Tognarelli. ‘Alternative property sectors serve a diversifying role within a broader portfolio with investment performance that is generally less correlated to regional economic activity. These traits may offer solutions for those investors seeking to construct more resilient property portfolios.’ As Smedley puts it: ‘We have long focused our European efforts on the region’s alternative sectors given their diverse and unique set of demand drivers that are delinked from broader economic cycles. Strategically, the new value fund is focused on investing in assets that combine growth potential with competitive risk-adjusted returns. Given the relative nascency of the specialty sectors in Europe, we believe the region offers a compelling combination of resilient cash flows, demographic driven growth, and continued institutionalization of these more niche asset classes.’
Private equity groups getting in on the act
Private equity groups are also turning their eye to the asset class. Earlier this year, HIG Capital provided €59 million of mezzanine financing to Storage24, a Germany-based business storage platform. The €59 million facility is backed by 55 properties totalling over 225,000 square metres.
‘Following our investment in Titan Storage Solutions, a self-storage platform in the UK, we have identified Storage24 as a key player in the business storage segment with a compelling business plan,’ said Riccardo Dallolio, managing director and head of HIG Europe Realty in London. ‘Our flexible approach to invest across the capital structure, and our sector specific knowledge, has allowed us to become a partner of choice for high quality real estate operating platforms.’ Chris Zlatarev, principal at HIG Europe Realty, added: ‘We’re really pleased to partner up with Storage24, which is a leading business storage platform with operations in key markets such as Germany, France, the Nordics and the U.K. We have structured a tailor-made financing to support the company’s growth serving the needs of the SME sector.’
